1. Individuals A and B both have $75,000 of wage and salary income. In the absence of any housing consideration, they would each pay $20,000 in income tax. They are both in the 30 percent tax bracket. Both A and B own houses. Each house could be rented for $1000 per month or $12,000 per year. However, A lives in the house she owns but B rents his house to others for $12,000 per year.
Both A and B have the following expenses:
Mortgage interest: $4,000
Property taxes: $3,000
Maintenance and
depreciation: $2,000
Total: $9,000
a. What is the tax advantage to owner-occupancy of housing?
Is there a tax advantage even if owner-occupiers were not allowed to deduct mortgage interest and property tax payments? If so, what is it?
Suppose A decides to sell her house that she bought for $62,000. She sells it for $120,000. Ignoring the cost of improvements, what is her capital gain? What is her capital gains tax liability?