Rocky Has a Full-Time Job as an Electrical Engineer for the City

question 26

Essay

Rocky has a full-time job as an electrical engineer for the city utility. In his spare time, he 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? expenses (other than home office) are $5,000. Expenses relating to the residence are as follows: $\begin{array}{lr}\text { Real property taxes } & \$ 4,500 \\\text { Interest on home mortgage } & 8,000 \\\text { Operating expenses of residence } & 3,000 \\\text { Depreciation (based on 20\% business use) } & 1,000\end{array}$ 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?

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Definitions:

Herbert Gans

An American sociologist known for his work in urban sociology, planning and public policy, and the study of culture.

Dirty Work

Occupations or tasks considered unpleasant, physically or morally challenging, but necessary for society's functioning.

Urban Renewal

A program of land redevelopment in areas of moderate to high density urban land use, focusing on improving neighborhoods that are substandard, rundown, or otherwise underdeveloped.

Subsidize

To support financially, often through grants or contributions, to reduce the cost of a service, product, or activity for the end-user.