John owns a negatively geared investment property with annual rental income of $28,000 and deductible expenses of $35,000. If his marginal tax rate is 37%, what is his net after-tax loss?
Correct Answer
C) $4,410
The property loss is $7,000 ($35,000 - $28,000). At a 37% marginal tax rate, John receives a tax benefit of $2,590 ($7,000 × 37%). His net after-tax loss is therefore $4,410 ($7,000 - $2,590).
Why This Is the Correct Answer
The pre-tax loss is $35,000 − $28,000 = $7,000. At 37%, the deduction saves $2,590 of tax, so John's after-tax loss is $7,000 − $2,590 = $4,410.
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