Question

The home buyers (owners and capitalist) are married and file joint returns. The market cost of their houses are each $120,000. ( For tax purposes $40,500 is allocated to the land and $79,500 to the building. In addition to the $120,000, the home buyers pay $2,000 in points, $400 for title insurance and miscellaneous expenses is $100. The home buyers invest $20,000 and obtain a $100,000 fixed rate, 12% ,mortgage that amortizes over 30 years. The renters invest their $20,000 in a money fund that yields 10% yearly. They reinvest the interest income into the fund each year. In the initial year, the renters pay rent of $10,000. Suppose the renters in this case were able to deposit their funds in a tax-deferred savings instrument. They still reinvest their interest savings every year, but pay no taxes on them until the end of the 10th year at which time the total interest amount accumulated is taxed at a rate of 28%. Recalculate the renters situation given these circumstances and compare it to the situation of the homeowners and capitalists.

Answer 1

Anwet As per the Assets (Total) given - a dala $ 120000) $ 40500 Y home land BY building 500 a money tuno tentals investment of $20000 in @ 10% per Anum. They receieve $2000 interest which they reinvest @ $ 20000 * 10% Year interest Amount [fund $ 20000 $2000 $2200 $ 22000 & 24 200 26620 $ 2420 $2662 $2928 $ 29282 By the end of 10th year total earnings would have $31875 as interest and $ 4759 95 linvested I amount. $ 3221 $32210 $ 3543 35431 8 3897 $ 38974 $ 4287 $ 42872 $ 4716 $ 47 159 Total $ 3187 5

ong the amount $31875 is taned @ 28%. 31875 x 38% =) $8925 . loa Thus, their net earnings at end of year if they don't pay leax will be $ 31875 - $89.25 = $22.950