Eriksen lesson 10 re investment 29 marginal tax rate

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Unformatted text preview: Adjustable Gross Income (AGI) 10 Real Estate Fundamentals Texas Tech University MID Example You have a standard $475,000 15 year FRM @ 8.4%. What is the value of the deduction for the 1 12 payments if your AGI is $100,000, your marginal tax rate is 28% and your average tax rate is 26%? TAX LIABILITY 3 MAIN TYPES OF TAX SUBSIDIES Tax Credits $1 for $1 reductions in taxes owed to the Gov‘t Deductions Allowed to be subtracted from active income to arrive at lower taxable income (adj. gross income) Equivalent deductions are worth less than credits A $10,000 deduction is worth $10,000 x MTR If you earn $100k, this is $10,000 x 0.28 or $2,800 Lower Marginal Rates for Capital Gains Gains from Investment Income Dr. Eriksen Lesson 10: RE Investment 32 st 33 Taxes Owed to Federal Gov’t $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 Adjustable Gross Income (AGI) 34 • • 11 Real Estate Fundamentals Texas Tech University Housing Subsidies Distribution of Housing Subsidies MORTGAGE INTEREST DEDUCTION Allowed to deduct interest portion of mortgage loan payments from income Entitled to Homeowners with Loans < $1 million Entitled to all business owners Business owners can also deduct financing Value of the Deduction? Solve for Interest Paid (can’t deduct principal paid) Multiply by Marginal Tax Rate Dr. Eriksen Lesson 10: RE Investment 35 36 37 12 Real Estate Fundamentals Texas Tech University Interest Deduction Example You have a 30 year FRM of $240k @ 5.76%. What is the Value of the deduction during 1 year of Loan? Average Tax Rate of 22%, Marginal Tax Rate = 25% Interest Paid = $13,743.48 (use calculator) Value = $13,743.48 x 0.25 = $3,435.87 What is Value of Deduction during 3 year? CAPITAL GAINS TAXATION Two Special Tax Provisions for Long term Asset Appreciation, or Capital Gains Gains Only Taxed when Assets are Sold Long term Cap Gains Taxed at lower 15% Rate Higher Income Have Lower Effective Tax Rates Special Treatment of RE Capital Gains Lesson 10: RE Investment 38 st rd 39 $250,0...
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This document was uploaded on 03/13/2014 for the course FIN 3332 at Texas Tech.

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