Tom paid $17k in mortgage interest and $8k in property taxes last year. His average tax...

Tom paid $17k in mortgage interest and $8k in property taxes last year.

His average tax rate is 21.5%, his marginal tax rate is 28%.

Compute Tom’s tax shield from the mortgage interest and property tax deduction.

Expert Solution

Solution

Tax shield from mortgage interest = 17k * 28%= 4.76k

Tax shield from property tax deduction = 8k * 0.28= 2.24k

Tax shield are calculated on marginal tax rate as Tom would have to pay marginal tax rate.

jeff jeffy answered 2 years ago

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