Alex, who is single, conducts an activity that is appropriately classified as a hobby. The activity produces the following revenues and expenses:
Revenue $18,000
Property taxes 3,000
Materials and supplies 4,500
Utilities 2,000
Advertising 5,000
Insurance 750
Depreciation 4,000
Without regard to this activity, Alex’s AGI is $42,000 and his personal exemption is $3,800. Determine the amount of income Alex must report, the amount of the expenses he is permitted to deduct, and his taxable income.