What is the annual tax on a property with a net income of $50,000, interest payments of $35,000, principal payments of $3,000, and annual cost recovery of $7,000 with a tax rate of 28%?

To find the annual tax on the property, we need to calculate the taxable income first.

Start with the net income of $50,000. From this, subtract the interest payments, which are tax-deductible. The interest payments amount to $35,000. This calculation looks like this:

Net Income: $50,000

• Interest Payments: $35,000

= Income after interest: $15,000

Next, we subtract the annual cost recovery, which is indicative of depreciation for the property. In this scenario, the annual cost recovery is $7,000. The calculation thus continues:

Income after interest: $15,000

• Annual Cost Recovery: $7,000

= Taxable Income: $8,000

Now that we have the taxable income, we can calculate the tax owed by applying the tax rate of 28% to the taxable income of $8,000:

Tax: $8,000 * 28% = $2,240

Thus, the annual tax on the property amounts to $2,240, which aligns with the option that was selected. This calculation demonstrates how deductions for interest payments and depreciation (cost recovery) significantly affect the taxable income, ultimately lowering the