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Javier and Anita Sanchez purchased a home on January 1, 2021, for $816,000 by paying...

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Accounting

Javier and Anita Sanchez purchased a home on January 1, 2021, for $816,000 by paying $272,000 down and borrowing the remaining $544,000 with a 7 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.

a. What is the after-tax cost of the interest expense to the Sanchezes in 2021?

b. Assume the original facts, except that the Sanchezes rent a home and pay $38,080 in rent during the year. What is the after-tax cost of their rental payments in 2021?

Peter and Shaline Johnsen moved into a home in a new subdivision. Theirs was one of the first homes in the subdivision. During the year, they paid $1,540 in real property taxes to the state government, $520 to the developer of the subdivision for an assessment to pay for the sidewalks, and $940 for real property taxes on land they hold as an investment. What amount of property taxes are the Johnsens allowed to deduct assuming their itemized deductions exceed the standard deduction amount before considering any property tax deductions and they pay $5,200 of state income taxes for the year and no other deductible taxes?

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