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 inherited $32,000 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 $2,350. They also found a three-bedroom home that would cost $112,000 to purchase. The Jacobys could use Meagans inheritance for a down payment on the home. Thus, they would need to borrow $80,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.75 percent for a 30-year fixed loan.

Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan dont have any school-related debt, so they will save the $32,000 if they dont purchase a home. Also, consider the following information:

• The couples marginal tax rate is 24 percent.
• Regardless of whether they buy or rent, the couple will itemize their 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, 2020.
• If they buy the home, the property taxes for the year are $3,700.
• Disregard loan-related fees not mentioned above.
• If the couple does not buy a home, they will put their money into their savings account, where they earn 5 percent annual interest.
• Assume that all unstated costs are equal between the buy and rent options.

Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)

Assume that on March 1, 2020, the Jacobys sold their home for $133,000, so that Derek and Meagan could accept job opportunities in a different state. The Jacobys used the sale proceeds to (1) pay off the $80,000 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 $60,000. Assume they make interest-only payments on the loan.

Required:

1. d1. What gain or loss do the Jacobys realize and recognize on the sale of their home?
2. d2. What amount of taxes must they pay on the gain, if any?