Julie and Gus are married and have no children. They expect to have $180,000 of taxable income in the next year and are considering whether to purchase a house that would provide itemized deductions of $110,000 from mortgage interest and property taxes.
Required:
What is their marginal tax rate for purposes of making this decision?
What is the possible tax savings if they buy the house?
Julie and Gus expect to have $180,000 of taxable income in the next year
They are considering whether to purchase a house that would provide itemized deductions of $110,000 from mortgage interest and property taxes.
The marginal tax rate is the percentage of tax applied to your income for each Tax brackate in which you qualify. In essence, the marginal tax rate is the percentage taken from your next dollar of Taxable income above a pre-defined income threshold.
What is their marginal tax rate for purposes of making this decision?
Marginalk Tax will be calculated as folllow
Marginal tax for the year 2016
| Rate | Married Joint Filers |
| 10% | $0 to $18,550 |
| 15% | $18,550 to $75,300 |
| 25% | $75,300 to $151,900 |
| 28% | $151,900 to $231,450 |
For 1,80,000 Income
| Particular | Amount In$ |
| Income | 180000 |
| Less: | |
| Standard Deduction | 12600 |
| Balnce | 167400 |
| Less: | |
| Iteamised Deduction | 110000 |
| 57400 |
| 10% | $0 to $18,550 | 1855 |
| 15% | $18,550 to $57400 | 5827.5 |
| Total Tax | 7682.5 |
Tax saving if choose an option
| 0.1 | $0 to $18,550 | 1855 |
| 0.15 | $18,550 to $75,300 | 8512.5 |
| 0.15 | $18,550 to $57400 | 5827.5 |
| 0.25 | $75,300 to $151,900 | 19150 |
| 0.28 | $151,900 to $231,450 | 3875 |
| Total Tax (A) | 39220 | |
| Less: | ||
| tax if choose an option | ||
| 0.1 | $0 to $18,550 | 1855 |
| 0.15 | $18,550 to $57400 | 5827.5 |
| (B) | 7682.5 | |
| Tax Savind (A-B) | 31537.5 |
