Helen, who is single, is considering purchasing a residence that will provide a $28,000 tax deduction for property taxes and mortgage interest. If her marginal tax rate is 25% and her effective tax rate is 20%, what is the amount of Helen's tax savings from purchasing the residence?

$7000.

Explanation:

Tax Savings means the decrease in Tax paid or payable to the relevant Tax Authority. It is a tax benefit that comes from tax deductions.

Marginal tax rate is the tax rate paid on the next dollar of income.

In calculating Tax savings, tax deductions are multiplied by marginal tax rate.

Given that

Marginal Tax rate = 25/100 = 0.25

Tax deduction = 28000

Therefore,

Tax savings = (25/100) × 28000

= 0.25 × 28000

= $ 7000