The value of the property securing the debt the debt

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South-Western Federal Taxation 2020: Comprehensive
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Chapter 12 / Exercise 1
South-Western Federal Taxation 2020: Comprehensive
Maloney/Raabe/Young
Expert Verified
the value of the property securing the debt. The debt reduction exclusion is limited to the reduc- tion in the liability secured by the personal residence; thus, d. is incorrect.
PTS: 1 REF: p. 5-32 | p. 5-33
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South-Western Federal Taxation 2020: Comprehensive
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Chapter 12 / Exercise 1
South-Western Federal Taxation 2020: Comprehensive
Maloney/Raabe/Young
Expert Verified
5-36 2009 Annual Edition/Test Bank 62. Flora Company owed $100,000 to the National Bank. Flora borrowed the funds to purchase land, which secures the loan.
PTS: 1 REF: p. 5-33 | p. 5-34 PROBLEM 1. Sungho is married, files a joint return, and expects to be in the 35% marginal tax bracket for the foreseeable future. All of his income is from salary and all of it is used to maintain the household. He has a paid-up life insurance policy with a cash surrender value of $50,000. He paid $24,000 of premiums on the policy. If he retains the policy, the insurance company will pay him $2,500 (5%) interest each year. Sungho thinks he can earn a higher return if he cashes in the policy and invests the proceeds. a. What before-tax rate of return would Sungho be required to earn on the proceeds from cash- ing in the policy to equal the return earned with the insurance company? b. Assume Sungho estimates he can earn an 7% before-tax rate of return on the proceeds from cashing in the policy. Assume he can earn an 7% return for the remainder of his life and that he will reinvest all earnings at the same 7% before-tax rate of return. If Sungho expects to live 10 more years, which alternative will yield the greater amount to his beneficiaries upon Sungho’s death? (Given: The future value of an annuity in 10 years assuming a 4.55% re- turn is 12.32. The future value of an annuity in 10 years assuming a 3.25% return is 11.60). ANS:
Gross Income: Exclusions 5-37 b. The life insurance proceeds will be exempt from income tax. Therefore, if Sungho retains

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