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Assessees are eligible for a deduction for definite interest incurred or paid throughout the fiscal year (tax). The amount and kind of deduction are determined by the purpose for which the money is lent. For adjusted gross income, interest on loans for rent, royalties, and commercial operations is deducted.
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- Exercise 4-24 (LO. 4) Elizabeth made the following interest-free loans during the year. Assume that tax avoidance is not a principal purpose of any of the loans. Assume that the relevant Federal rate is 5% and that the loans were outstanding for the last six months of the year. Borrower's Net Borrower Amount Investment Income Purpose of Loan Richard $5,000 $800 Gift Woody $8,000 $600 Purchase stock Irene $105,000 $0 Purchase residence What are the effects of the imputed interest rules on these transactions? Compute Elizabeth's gross income from each loan. If an amount is zero, enter "0". a. Richard subject to the imputed interest rules because the $10,000 gift loan exception apply. Elizabeth's gross income from the loan is $ b. The $10,000 exception E apply to the loan to Woody because the proceeds were used to purchase assets. Although the $100,000 exception to this loan, the amount of imputed interest is Elizabeth's gross income from the loan is $ C. to the loan to Irene because the…Exercise 4-24 (Lo. 4) Elizabeth made the following interest-free loans during the year. Assume that tax avoidance is not a principal purpose of any of the loans. Assume that the relevant Federal rate is 5% and that the loans were outstanding for the last six months of the year. Borrower's Net Borrower Amount Investment Income Purpose of Loan Richard $5,000 $800 Gift Woody $8,000 $600 Purchase stock Irene $105,000 $0 Purchase residence What are the effects of the imputed interest rules on these transactions? Compute Elizabeth's gross income from each loan. If an amount is zero, enter "0". V subject to the imputed interest rules because the $10,000 gift loan exception does a. Richard is not gross income from the loan is $ apply. Elizabeth's b. The $10,000 exception does not income producing v apply to the loan to Woody because the proceeds were used to purchase v assets. Although the $100,000 exception applies v to this loan, the amount of imputed interest is |. Elizabeth's gross income…Before-tax cost of debt and after-tax cost of debt David Abbot is buying a new house, and he is taking out a 30-year mortgage. David will borrow $208,000 from a bank, and to repay the loan he will make 360 monthly payments (principal and interest) of $1,376.57 per month over the next 30 years. David can deduct interest payments on his mortgage from his taxable income, and based on his income, David is in the 30% tax bracket. a. What is the before-tax interest rate (per year) on David's loan? b. What is the after-tax interest rate that David is paying? a. The before-tax interest rate (per year) on David's loan is %. (Round to two decimal places.)
- LO.4 Elizabeth made the following interest-free loans during the year. Assume that tax avoidance is not a principal purpose of any of the loans. Assume that the relevant Federal rate is 5% and that the loans were outstanding for the last six months of the year. What are the effects of the imputed interest rules on these transactions? Compute Elizabeths gross income from each loan: a. Richard b. Woody c. IreneD Question 8 On 1 December in the previous year a taxpayer borrows $350,000 to use in his business. He pays $2,000 in Stamp Duty and $500 in mortgage broker fees. The loan was to be repaid in 10 years. Interest in the current year was $10,000. What is the remaining expenditure and the remaining loan period to calculate the claim for borrowing expense deduction under $25-25 in the current year? O $350,000 and 3,650 days O $2,500 and 1,825 days 13 days $12.500 and 1.825 days $2.210 and 1.Before-tax cost of debt and after-tax cost of debt David Abbot is buying a new house, and he is taking out a 30-year mortgage. David will borrow $200,000 from a bank, and to repay the loan he will make 360 monthly payments (principal and interest) of $1,199.10 per month over the next 30 years. David can deduct interest payments on his mortgage from his taxable income, and based on his income, David is in the 30% tax bracket. a. What is the before-tax interest rate (per year) on David’s loan? b. What is the after-tax interest rate that David is paying?
- Question On January 1, 2021, P bought her first home (her principal residence) for $700,000 by paying $300,000 down. She borrowed the remaining $400,000 by taking out a 15-year mortgage loan at her bank. This main loan had a 3% Interest rate. During 2021, P paid interest of $12,000 and no principal payments on this main loan. On July 1, 2021, when the home was worth $750,000, P took out a home-equity loan of $50,000 with an interest rate of 4 percent, using the $50,000 to buy a personal car and to pay off credit card debt. During 2021, she made interest payments on the $50,000 home-equity loan in the amount of $1,000 (and no principal payments on the home-equity loan). Both loans were recorded with the home as security. What amount of the $13,000 interest expense paid can P deduct as a 2021 itemized deduction? a. $12,000 b. $1,000 C. $O d. $13,000Accounting Q1: Randall receives a $4,200 monthly payment from a registered annuity. He calculates that 65.2% of the payment is a return of capital and the rest is interest. What portion of the payments would be taxable? Q2: Tony earned $80,000 last year, and there was a $4,800 pension adjustment. He will earn $84,000 this year. How much can he contribute to his RRSP this year, and what is his taxable income this year ?Exercise 4-25 (Algorithmic) (LO. 4) A taxpayer, age 64, purchases an annuity from an insurance company for $66,000. She is to receive $550 per month for life. Her life expectancy is 20.8 years from the annuity starting date. Assuming that she receives $6,600 this year, what is the exclusion percentage, and how much is included in her gross income? Round the exclusion percentage to two decimal places. Round the final answer for the income to the nearest dollar. Exclusion percentage: Included in income: 48.07 X % 3,427
