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I often see ads for tax-exempt investments listing a yield and what they call an ``equivalent taxable yield.' Is there a way I can calculate equivalent taxable yields of other investments so I can make meaningful comparisons?

Absolutely. The most uncomplicated way to calculate the simple yield of investment is to divide its earnings, or dividends, by the price you paid for it. If you paid $20 per share for a stock and it is paying a $2 annual dividend, your yield is 10 percent. But if that dividend is taxable income to you, it is reduced by the taxes you must pay both the state and federal governments.Before you can effectively compare this potential stock investment to, say, a double tax-free money market fund (a fund that invests in state municipal bonds and whose dividends are free of state and federal taxes), you need to calculate what the tax bite will be.

Your first step should be to pull out your most recent state and federal tax returns and look up your marginal tax rate. Federal rates are 15 percent, 28 percent and 31 percent.

For the purposes of example, we'll use a married couple with an adjusted gross income of $70,000 whose marginal federal tax rate is 28 percent and whose state rate is 9.3 percent. The couple is considering investing in a federal tax-free mutual fund yielding 6 percent and wants to know what the equivalent return would be in a taxable investment.

To compute the equivalent return, divide the tax-exempt yield (6 percent) by 1 minus your marginal tax rate expressed as a decimal (1 - .28 .72) The answer is 8.3 percent (6 percent divided by 0.72), meaning that the couple would have to earn a taxable yield of 8.3 percent to match the 6 percent tax-free yield.

It is almost as easy to compare taxable yields and double-tax free investments.

First, you must calculate your combined effective federal and state tax rates by multiplying your state tax rate (9.3 percent in this example) by .72 (1 minus your federal rate expressed as a decimal). The answer here is 6.696 percent.

Now add that to your federal rate of 28 percent for a combined rate of 34.696 percent and subtract it from 100 percent. The answer is 65.304 percent or, expressed as a decimal, 0.65304. Now divide the tax-free yield - we'll say it's 6 percent again - by 0.65304 and the answer is 9.19 percent. This means that this couple, with a combined effective tax rate of 34.696 percent, would have to earn a taxable yield of 9.19 percent to equal the return of a double tax-free investment yielding 6 percent.

My two brothers and I bought a house as joint tenants. My older brother and I live there; our younger brother lives in another part of the state but pays a portion of the monthly mortgage. We each put up an equal share of the down payment on the house. How much can each of us can claim as a mortgage deduction on our taxes?

Because you and your older brother live in the house, you can deduct the full amount of your mortgage interest payments on your tax return. Remember, interest on a mortgage taken out to purchase a principal residence or second home is fully deductible.

Although your younger brother cannot deduct his share of the mortgage payment as interest on his principal residence, our experts say he can legitimately claim the house as his second home and deduct his share of the mortgage interest as second-home interest. This is probably the easiest way for him to handle the deduction.

What Social Security benefits might a 70-year-old widow expect upon the death of her about-to-be-acquired second husband at the time of his death? Would she receive part of her second husband's benefits and none of her first husband's benefits?

Assuming the two-time widow had never worked, she would be entitled to widow's benefits on the larger account of her two former husbands. If the widow had worked, she can choose among her own benefits and those of her two deceased husbands and select the highest payment.


Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Please do not telephone. Write to Your Money, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.

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