Question

Alex, single, earns wags of $42,000 in 2026. He also conducts an activity that produces the following revenues and expenses:

Revenues $18,000

Expenses

Property taxes 3,000

Materials and supplies 4,500

Utilities 2,000

Advertising 5,000

Insurance 750

Cost Recovery 8,000

Alex also pays mortgage interest during the year of $8,000. Assume Congress passes no new tax laws between now and 2026 and that there are no relevant inflation adjustments.

1. Assuming the activity is a business, Alex' 2026 AGI is $ and his taxable income (ignoring the personal exemption) is $.

2. Assuming the activity is NOT a business, Alex' 2026 AGI is $ and his taxable income (ignoring the personal exemption) is $.

Answer 1

Business Activity
Particulars	Amount (in $)	Amount (in $)
Income from wages		42000
Income from Business
a) Revenue	18000
b) Less: Expenses
i) Property Taxes	3000
ii) Materials & Supplies	4500
iii) Utilities	2000
iv) Advertising	5000
v) Insurance	750
vi) Cost Recovery	8000
vii) Mortagage Interest	8000	-13250
Taxable income		55250
Not a business activity
Particulars	Amount (in $)	Amount (in $)
Income from wages		42000
Income from other sources
Revenue	18000
less mortagage Interest	-8000	26000
Taxable income		68000