What is Rocky net income from the repair business

Reference no: EM132698418

Question - Rocky has a full-time job as an electrical engineer for the city utility. In his spare time, Rocky repairs electronic gear in the basement of his personal residence. Most of his business comes from friends and referrals from former customers, although occasionally he runs an ad in the local suburbia newspaper. Typically, the items are dropped off at Rocky's house and later picked up by the owner when notified that the repairs have been made.

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) are $5,000. Expenses relating to the 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

What is Rocky's net income from the repair business?

a. If he uses the regular (actual expense) method of computing the deduction for office in the home?

b. If he uses the simplified method?

Reference no: EM132698418

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