Question

Kara wants to purchase a home for $300,000. In order to purchase her home, she obtains a $275,000 loan that will be repaid in 30 years and has a fixed interest rate of 5%. Assume that during year 4, the interest she pays totals $11,940 and property taxes paid are $6,000. Kara is in the 30% tax bracket. What is the reduction in the amount of taxes that Kara must pay to the federal government?

Answer 1

$5,382

Step-by-step explanation:

both property taxes and mortgage interests are tax deductible if Kara decides to itemize her deductions:

her total reduction in federal income taxes will be = ($11,940 + $6,000) x 30% = $5,382

by itemizing her deductions Kara will save = ($11,940 + $6,000) - $12,200 standard deduction = $5,740 x 30% = $1,722