Miranda is in the 32​% tax bracket. Steve is in the 22​% tax bracket. They each itemize their deductions and qualify for a ​$15 comma 000 mortgage interest deduction. Compare their true costs for mortgage interest. How does your answer​ change, if like most people in the 22​% ​bracket, Steve does not​ itemize?
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Part 1
​Miranda's true cost for mortgage interest is

To compare Miranda's and Steve's true costs for mortgage interest, we need to account for the tax savings each of them gets from the mortgage interest deduction.

### Part 1: Miranda's True Cost for Mortgage Interest
Miranda is in the 32% tax bracket and she qualifies for a $15,000 mortgage interest deduction. The tax savings from this deduction can be calculated by multiplying the deduction by her tax rate:

\[
\text{Tax savings} = 15{,}000 \times 32\% = 15{,}000 \times 0.32 = 4{,}800
\]

Thus, Miranda saves $4,800 on her taxes due to this deduction.

Now, to find Miranda's **true cost** for mortgage interest, we subtract the tax savings from the original mortgage interest:

\[
\text{True cost} = 15{,}000 - 4{,}800 = 10{,}200
\]

So, Miranda's true cost for mortgage interest is **$10,200**.

### Part 2: Steve's True Cost for Mortgage Interest (Itemizing)
Steve is in the 22% tax bracket, and like Miranda, he qualifies for the same $15,000 mortgage interest deduction. If Steve itemizes his deductions, his tax savings are:

\[
\text{Tax savings} = 15{,}000 \times 22\% = 15{,}000 \times 0.22 = 3{,}300
\]

Steve saves $3,300 on his taxes from the deduction.

Steve's true cost for mortgage interest if he itemizes is:

\[
\text{True cost} = 15{,}000 - 3{,}300 = 11{,}700
\]

So, Steve's true cost for mortgage interest is **$11,700** if he itemizes.

### Part 3: Steve's True Cost if He Does Not Itemize
If Steve does not itemize his deductions, he does not receive any tax savings from the mortgage interest deduction. Therefore, his true cost for mortgage interest is simply the full $15,000:

\[
\text{True cost} = 15{,}000
\]

So, if Steve does not itemize, his true cost for mortgage interest is **$15,000**.

### Summary:
- **Miranda's true cost** for mortgage interest (in the 32% tax bracket and itemizing) is **$10,200**.
- **Steve's true cost** for mortgage interest:
  - If he itemizes (in the 22% tax bracket), it is **$11,700**.
  - If he does not itemize, his true cost is **$15,000**.

Would you like more details on this? Here are some follow-up questions to consider:

1. How would the costs change if the tax brackets were different?
2. How does itemizing deductions affect the overall tax savings?
3. What is the impact of standard deductions compared to itemizing?
4. What happens if the mortgage interest deduction amount changes?
5. How do other tax-deductible expenses factor into Miranda's and Steve's total costs?

**Tip:** Itemizing deductions can only save you money if the total deductions exceed the standard deduction for your tax bracket.

Miranda is in the 32​% tax bracket. Steve is in the 22​% tax bracket. They each itemize their deductions and qualify for a ​$15,000 mortgage interest deduction. Compare their true costs for mortgage interest. How does your answer​ change, if like most people in the 22​% ​bracket, Steve does not​ itemize?

Discover how to calculate the true cost of mortgage interest for individuals in different tax brackets. This example compares Miranda's 32% bracket with Steve's 22% bracket, accounting for tax deductions and itemization. Learn the impact of itemizing deductions on true costs with clear calculations.

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