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Required information The following information applies to the questions displayed below Javier and Anita Sanchez purchased a home on January 1, 2018, for $630,000 by paying $210,000 down and borrowing the remaining $420,000 with a 4 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.) c. Assuming the interest expense is their only itemized deduction for the year and that Javier and Anita file a joint return, have great eyesight, and are under 60 years of age, what is the after-tax cost of their 2018 interest expense? fter-tax cost of the interest expense

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Only part in excess of standard deduction will produce tax benefit to them.

Answer is highlighted in yellow: Solution: 19,104 Answer: c) Explanation Standard deduction 2018 Interest before tax expense (420000*4%) Add: Tax Loss (24000-16800)*32% After tax cost of interest expense $ 24,000 $ 16,800 S2,304 $ 19,104 Since, interest is the only itemized deduction, standard deduction for Married filing jointly is $24000. Only part in EXCESS of standard deduction will produce tax benefit to them. In this case, standard deduction is more than interest expense. Therefore, after tax cost of interest expense will be adjusted with Tax loss.

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