Required information [The following information applies to the questions display

Question

Required information [The following information applies to the questions displayed below. Javier and Anita Sanchez purchased a home on January 1, 2018, for $655,000 by paying $218,333 down and borrowing the remaining $436,667 with a 9 percent loan secured by the home. The loan requires interest-only payments for the first five years. The Sanchezes would itemize deductions even if they did not have any deductible interest. The Sanchezes' marginal tax rate is 32 percent. (Round your intermediate calculations to the nearest whole dollar amount.) b. Assume the original facts, except that the Sanchezes rent a home and pay $39,300 in rent during the year. What is the after-tax cost of their rental payments in 2018? After-tax cost of the rental payments

Explanation / Answer

If sanchez is renting home, he can claim it as deduction from income as an expense. Thus he will be saving Tax amount on $39300. ie he will save tax of $12,576.

Hence after tax cost of the rental payments = $39300(1-0.32) =$ 26,724. or $39300-$12576=$26,724.

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