Rachel has a full-time job as an electrical engineer for the city utility. In her spare time, she repairs electronic gear in the basement of her personal residence. Typically, the items are dropped off at Rachels house and later picked up by the owner when notified that the repairs have been made. The floor space of Rachaels residence is 2,500 square feet, and she estimates that 20% of this is devoted exclusively to the repair business (i.e., 500 square feet). Gross income from the business is $12,000 expenses (other than home office) are $7,000. Expenses relating to the residence are as follows:

Real property taxes $4,000

Interest on home mortgage $9,000

Operating expenses of residence $2,500

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

a. What is Rachel's net income from the repair business if she uses the regular (actual expense) method of computing the deduction for office in the home?

b. What is Rachel's net income from the repair business if she uses the simplified method of computing the deduction for office in the home?

b. What is Rachel's net income from the repair business if her gross income from the business is $10,000 rather than 12,000?