Cost Justification for all non utility Power production - Page 2

 

daestrom wrote:


Right - but current loan rates are under 10% (here - I would expect
approximately the same in the US), so you're not paying tax at an apparent
rate of 27%, but paying the bank 10%.  Seems like a deal to me.
--
derek

 



No, I don't understand what you're trying to say.  Yes, interest rates here
are under 10% also, but that doesn't make much difference.

Let's say I borrowed $100,000 to buy and fix up my house, and the interest
is 5%.  So for the first year, I pay about $5000 in interest to the bank
(not quite, since the amount goes down as the principle is paid).

Now, let's further suppose that my income is $50,000 and I'm in the 27%
income tax bracket. Since we're on a 'graduated' tax system, my tax bill
*before* taking out the loan might be something like:  first $5,000
tax-free, next $10,000 taxed at 15%, and the last $35,000 taxed at 27%.  So
the total tax could be something like 15%*$10,000 + 27%*$35,000 = $10,950.
(these aren't the real tax bracket numbers, but they illustrate the
calculation).

But if I can deduct the interest I pay on the loan, then my tax bill would
be lower.  Only $45,000 of my income would be taxable, so the bill would
calculate something like:  first $5,000 tax-free, next $10,000 taxed at 15%,
and the last $30,000 taxed at 27%.  The total would be 15%*$10,000 +
27%*$30,000 = $9,600.  This is $1,350 lower than if I don't take the
deduction.  It works out the same as if I took the 'marginal' tax rate of
27% (the rate the *last* dollar of income is taxed), times the amount of the
deduction (27% * $5,000 = $1,350).

If I didn't have to pay the interest at all, I'd be further ahead ($5,000).
But if the interest is deductable and I'm in the 27% tax bracket, then the
$5,000 in interest reduces my tax bill by $1,350.  So it *really* only cost
me $3,650 for the first year to borrow that $100,000.  Worst case is if the
interest is *not* deductable, then I pay $5,000 in interest and still have
to pay $10,950 in taxes.

Government tries all sorts of rules/codes to give the tax payer an
'incentive' to make certain kinds of investments.  Home mortgage interest is
just one of them.  But it ends up making the US tax code one of the most
complicated set of documents there is.  Even the IRS often messes up when
they do an audit on someone.

daestrom

 

In Canada, None of our interest or expenses can be deducted. But then we
have curbs on our roads and  US made cars that rust out in 6 years.


itemize,

 



only because YOUR not smart enough to "Undercoat" them, before
you drive them around on your "Salted" winter roads.....
This isn't Rocket Science, only common sense......


Me

 

LOL.. if you only know how much people spend in undercoating here every
year. It doesn't do it.

Despite all the undercoating a Toyota or Honda outlasts the USanian junk
without undercoating, regardless of where it is made.