Jillian and Geoffry are married and file a joint return. They expect to have $23
ID: 2471853 • Letter: J
Question
Jillian and Geoffry are married and file a joint return. They expect to have $230,000 of taxable income in the next year and are considering whether to purchase a personal residence that would provide additional tax deductions of $69,000 for mortgage interest and real estate taxes.
Requirements
A. What is their marginal tax rate for purposes of making this decision?
B. What is the tax savings ifthe residence is acquired?
Requirement A. What is their marginal tax rate for purposes of making this decision?
The marginal tax rate is ___% if the personal residence is not purchased and is ___% if the personal residence is purchased.
Requirement B. What is the tax savings if the residence is acquired? (Do not round any interim calculations. Round your final answers to the nearest cent.)
Tax without purchase of personal residence ____
Tax with purchase of personal residence _____
Tax savings ____
Reference
Married, Filing Joint and Surviving Spouse
If taxable income is: The tax is:
Not over $18,150 . . . . . . . . . . . . . . . . . . ... 10% of taxable income.
Over $18,150 but not over $73,800 . . . . ... $1,815.00 +15% of the excess over $18,150.
Over $73,800 but not over $148,850 . . . .. . $10,162.50 + 25% of the excess over $73,800.
Over $148,850 but not over $226,850. . . . . $28,925.00 + 28% of the excess over $148,850.
Over $226,850 but not over $405,100. . . . . $50,765.00 + 33% of the excess over $226,850.
Over $405,100 but not over $457,600. . . . . $109,587.50 + 35% of the excess over $405,100.
Over $457,600 . . . . . . . . . . . . . . . . . . . . . . . $127,962.50 + 39.6% ofthe excess over $457,600.
Explanation / Answer
A./
THE MARGINAL TAX RATE IS 33% IF THE PERSONAL RESIDENCE IS NOT PURCHASED AND IS 28% IF THE PERSONAL RESIDENCE IS PURCHASED.
B./
TAX WITHOUT PURCHASE OF PERSONAL RESIDENCE
= $50765 + ($230000 - $226850) * 33%
= $50765 + 1039.5
= $51804.5 OR 51805 (ROUNDED)
TAX WITH PURCHASE OF PERSONAL RESIDENCE
= $28925 + ($161000 - 148850) * 28%
= $28925 + $3402
= $32327
TAX SAVINGS
= $51805 - $32327
= $19478
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