Question

Jane and Gregory are married and file a joint return. They expect to have $ 380,000 of taxable income in the next year and are considering whether to purchase a personal residence that would provide additional tax deductions of $ 114,000 for mortgage interest and real estate taxes.

The marginal rate is ___% if the personal residence is not purchased and is ___ % if the personal residence is purchased

What is the tax savings if residence is aquired? (round to the nearest cent)

Tax without purchase of personal residence ____

Tax with purchase of personal residence _____

Tax savings ____

Answer 1

Marginal rate if personal residence is not purchased: 33%

marginal rate if personal residence is purchased: 33%

Tax without purchase of residence:

Pretax income		380,000
Filing status		Married filing joint return
Taxable Income			Tax					Tax calculated
Is over		But not over	Base tax	plus				Base tax	+	plus		=	Tax
-		18,650	-	10% of	income			-	+	0% *	-	=	-
18,650		75,900	1,865.00	15% of	income over	18,650		-	+	0% *	-	=	-
75,900		153,100	10,452.50	25% of	income over	75,900		-	+	0% *	-	=	-
153,100		233,350	29,752.50	28% of	income over	153,100		-	+	0% *	-	=	-
233,350		416,700	52,222.50	33% of	income over	233,350		52,222.50	+	33% *	146,650	=	100,617.00

Tax with purchase:

Pretax income		266,000
Filing status		Married filing joint return
Taxable Income			Tax					Tax calculated
Is over		But not over	Base tax	plus				Base tax	+	plus		=	Tax
-		18,650	-	10% of	income			-	+	0% *	-	=	-
18,650		75,900	1,865.00	15% of	income over	18,650		-	+	0% *	-	=	-
75,900		153,100	10,452.50	25% of	income over	75,900		-	+	0% *	-	=	-
153,100		233,350	29,752.50	28% of	income over	153,100		-	+	0% *	-	=	-
233,350		416,700	52,222.50	33% of	income over	233,350		52,222.50	+	33% *	32,650	=	62,997.00

Tax savings= 37620