Pedro, a cash basis taxpayer, would like to sell ordinary income property that will result in an increase in his taxable income of $20,000. Pedro also owes $12,000 of property taxes that are deductible. He is flexible and can properly report either or both of the items on his 2018 or 2019 tax return. Pedro expects his marginal tax rate to be 24% for 2018 and 32% for 2019. If the applicable interest rate is 9% (.917 present value factor), when should Pedro report each item? Show your calculations and explain.

Question

Quizplus · Accepted Answer

The Answer of Pedro, a cash basis taxpayer, would like to sell ordinary income property that will result in an increase in his taxable income of $20,000. Pedro also owes $12,000 of property taxes that are deductible. He is flexible and can properly report either or both of the items on his 2018 or 2019 tax return. Pedro expects his marginal tax rate to be 24% for 2018 and 32% for 2019. If the applicable interest rate is 9% (.917 present value factor), when should Pedro report each item? Show your calculations and explain.

Pedro, a Cash Basis Taxpayer, Would Like to Sell Ordinary