McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 59

Javier and Anita Sanchez purchased a home on January 1, 2011 for, $500,000 by paying $200,000 down and borrowing the remaining $300,000 with a 7 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 30 percent.a.What is the after-tax cost of the interest expense to the Sanchezes in 2011?
b.Assume the original facts, except that the Sanchezes rent a home and pay $21,000 in rent during the year.What is the after-tax cost of their rental payments in 2011?
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 2011 interest expense?