21. Juanita knits blankets as a hobby and sells them. In the current year, she earns $5,000 from her blanket sales and incurs expenses of $600. Juanita itemizes deductions on Schedule A. On her tax return, she should

1. Include $5,000 of hobby income and deduct $500 (10%) of hobby expenses from AGI.
2. Include $5,000 of hobby income and deduct $600 of hobby expenses for AGI.
3. Include $5,000 of hobby income and deduct nothing from AGI since such expenses are no longer allowed as 2% miscellaneous itemized deductions.
4. Include no hobby income and no hobby deductions.

22. Wayne and Maria purchase a home on April 1 of the current year. In order to obtain a thirty-year mortgage of $360,000, they are required to pay 2 (two) points at closing. Charging points is a customary business practice in the area; such points are separately computed and properly disclosed on the closing documents. In addition, they pay $4,400 of interest during the year.

What is their current year interest deduction related to their home?

a. $4,400

b. $4,580

c. $7,200

d. $11,600