Reference no: EM132464869

Question - Rocky has a full-time job as an electrical engineer for the city utility company. In his spare time, Rocky repairs TV sets in the basement of his personal residence. The floor space of Rocky's residence is 2,500 square feet, and he estimates that 20% of this is devoted exclusively to the repair business (i.e., 500 square feet). Gross income from the business is $13,000, while expenses (other than home office expenses) are $5,000. Expenses relating to the entire residence are as follows:

Real property taxes $4,500

Interest on home mortgage 8,000

Operating expenses of residence 3,000

Depreciation (based on 20% business use) 1,000

Required - What is Rocky's net income from the repair business if:

a. He uses the regular (actual expense) method of computing the deductions for office in the home?

b. He uses the simplified method?