Colin, a self-employed consultant, uses a room of his home as a business office. This room represents 10 percent of the home’s square footage. This year, Colin incurred the following expenses in connection with his home:
Home mortgage interest …………………………$12,980
Property tax on residence ………………………… 2,200
Homeowner’s insurance ………………………… 1,475
Utilities ………………………………………….. 2,100
Furnace repairs ………………………………….. 300
Colin purchased the home in 2000 for $225,000. For MACRS depreciation purposes, he allocated $185,000 to the building and $40,000 to the land.
a. If Colin’s gross business income exceeded his operating expenses by $75,000, compute his net profit for the year.
b. If Colin’s gross business income exceeded his operating expenses by $1,800, compute his net profit for the year.