Question

Jillian and Gus are married and file a joint return. They expect to have $180,000 of taxable income in the next year and are considering whether to purchase a personal residence that would provide additional tax deductions of $36,000 for mortgage interest and real estate taxes.

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Requirement a. What is their marginal tax rate for purposes of making this​ decision?​ (Enter amounts as percentages to one decimal​ place.)

What is the marginal tax rate if the personal residence is not purchased?		%
What is the marginal tax rate if the personal residence is purchased?

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If taxable income is:	The tax is:
Not over $19,050	10% of taxable income.
Over $19,050 but not over $77,400	$1,905.00 + 12% of the excess over $19,050.
Over $77,400 but not over $165,000	$8,907.00 + 22% of the excess over $77,400.
Over $165,000 but not over $315,000	$28,179.00 + 24% of the excess over $165,000.
Over $315,000 but not over $400,000	$64,179.00 + 32% of the excess over $315,000.
Over $400,000 but not over $600,000	$91,379.00 + 35% of the excess over $400,000.
Over $600,000	$161,379.00 + 37% of the excess over $600,000.

Answer 1

Ans :

• Marginal tax rate if the personal residence is not purchased :

24% but again, that doesn't mean all $ 1,80,000 is taxed at 24% only income over $ 1,65,000 will be taxed at 24%.

• Marginal tax rate if personal residence is purchased :

Taxable income. $ 1,80,000

Less : additional tax deduction $ 36,000

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Net taxable income . $ 1,44,000

So, marginal tax rate = 22%

But income only over $ 77,400 will be  taxed at 22%