Reference no: EM132168380

Question: One January Gerald Adair bought a small house and lot for $99,700. He estimated that $9700 of this amount represented the land's value. He rented the house for $6500 a year during the 4 years he owned the house. Expenses for property taxes, maintenance, and so forth were $500 per year. For tax purposes the house was depreciated by MACRS depreciation (27.5-year straight-line depreciation with a midmonth convention is used for rental property). At the end of 4 years the property was sold for $105,000. Gerald is married and works as an engineer. He estimates that his incremental state and federal combined tax rate is 24%. What after-tax rate of return did Gerald obtain on his investment?