2023***

Derek and Meagan Jacoby recently graduated from State University, and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherted $70,000 from her grandfather, who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $3,300. They also found a three-bedroom home that would cost $340,000 to purchase. The Jacobys could use Meagan's inheritance for a down payment on the home. Thus, they would need to borrow $270,000 to acquire the home. They have the option of paying two discount points to recelve a fixed interest rate of 4.50 percent on the loan or paying no points and recelving a fixed interest rate of 5.70 percent for a 30 -year fixed loan. Though anything could happen, the coyple expects to live in the home, for no more than five years before relocating to a different reglon of the country. Derek and Meagan don't have any school-related debt, so they will save the $70,000 if they don't purchase a home. Also, consider the following information: - The couple's marginal tax rate 1520 percent. - Regardless of whether they buy or rent, the couple will itemize thelr deductions and have the ability to deduct all of the property taxes from the purchase of a residence. - If they buy, the Jacobys would purchase and move into the home on January 1,2023. - If they buy the home, the property taxes for the year are $4,650. - Disregard loan-related fees not mentioned above. - If the couple does not buy a home, they will put thelr money into their taxable annulty account, where they earn 4.95 percent annual Interest. - Assume that all unstated costs are equal between the buy and rent options. Help the Jacobys with their decislons by answering the following questlons: Note: Leave no answer blank. Enter zero if applicable. Comprehensive Problem 14.68 Part a (Algo) a. If the Jacobys decide to rent the home, what is thelr atter-tax cost of the rentaifor the first year? (include income from the annulty account in your analys/5) Note: Round your intermediate calculations to the nearest whole doliar amount. Comprehenslve Problem 14-68 Part b (Algo) b. What is the approximate break-even point in years (or months) for paying the points to recelve a reduced interest rate? (To simplify this computation, assume the Jacobys wili make interest-only payments, and ignore the time value of money) Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. What is the after-tax cost (in interest and property taxes) of ilving in the home for 2023 ? Assume that the Jacobys' interest rate is 5.70 percent, they do not pay discount points, they make interest-only payments for the first year, and the value of the home does not change during the year. Assume that on March 1, 2023, the Jacobys sold their home for $380,000, so that Derek and Meagan coul $ accept job opportunitles in a different state. The Jacobys used the sale proceeds to 1. Pay off the $270,000 principal of the mortgage. 2. Pay a $10,000 commission to their real estate broker, and 3. Make a down payment on a new home in the different state. However, the new home cost only $202,500, Assume they make interest-only payments on the loan. Note: Round your intermedlate calculations to the nearest whole dollar amount. Comprehenslve Problem 14.68 Part d (Algo) Assume that on March 1, 2022, the Jacobys sold their home for $380,000, so that Derek and Meagan could accept job opportunittes in a different state. The Jacobys used the sale proceeds to (i) pay off the $270,000 principal of the mortgage, (2) pay a $10,000 commission to thelr real estate broker, and (3) make a down payment on a new home in the different state. However, the new home cost only $202,500. Assume they make interest-only payments on the loan. Required: d1. What galn or loss do the Jacobys realize and recognize on the sale of their home? d2. What amount of taxes must they pay on the gain, if any? Complete this question by entering your answers in the tabs below. e. Assume the same facts as in part (d), except that the Jacobys sell their home for $320,000 and they pay'a $7,500 commission. What effect does the sale have on their 2023 income tax llability? Recall that the Jacobys are subject to an ordinary marginal tax rate of 20 percent, and assume that they do not have any other transactions involving capltal assets in 2023