Question

The Wilmoths plan to purchase a house but want to determine the after-tax cost of financing its purchase. Given their projected taxable income, the Wilmoths are in the 24% Federal income tax bracket and the 8% state income tax bracket (i.e., an aggregate marginal tax bracket of 32%). The total cash outlay during the first year of ownership will be $23,400 ($1,200 principal payments, $22,200 qualified residence interest payments).As a result, the annual after-tax cost of financing the purchase of the home will be $_____________.

Answer 1

The annual after-tax cost of financing the purchase of the home will be $ 16,296.

Step-by-step explanation:

To calcuate the annual after-tax cost of financing the purchase of the home we have to use the following formula:

annual after-tax cost of financing the purchase= Installment -tax saving

Acording to the data Tax Saving = 32 % x of Interest amount , hence, tax saving= 32% x $22,200

=$7,104

So, annual after-tax cost of financing the purchase= $23,400- $7,104

= $ 16,296