Because the Sanchezes had no other itemized deductions, their interest expense only produces a benefit to them to the
extent that it exceeds the standard deduction, calculated as follows:
(1)Before-tax interest expense
$630,000 × 6%. All deductible.
(3)Interest in excess of standard deduction$25,100
(1) − (2)
Marginal tax rate
(5)Tax savings from interest expense
(3) × (4)
After-tax cost of interest expense
(1) − (5)
In year 1, Peter and Shaline Johnsen moved into a home in a new subdivision. Theirs was one of the first homes in the
subdivision. In year 1, they paid $3,900 in real property taxes to the state government, $990 to the developer of the
subdivision for an assessment to pay for the sidewalks, and $1,090 for real property taxes on land they hold as an
investment. What amount of property taxes are the Johnsens allowed to deduct assuming their itemized deductions
exceed the standard deduction amount before considering any property tax deductions?