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Tax Considerations For All Cash Buyers

Tax Considerations For All Cash Buyers

Good Things to Bear in Mind When Paying Cash for Your Home

Buying a home with cash seems like it is a straightforward process. You can save some money and time with lower closing costs, and no stressful financing contingencies or required appraisals. However, there are some things that may be less obvious like property taxes, tax deductions, and reporting. Here is a closer look at some of these details. 
 

What Tax Breaks Do Homeowners Get?

Generally speaking, homeowners can take advantage of some deductions on their yearly income taxes. These deductions include property taxes, mortgage interest, mortgage insurance premiums (PMI), and mortgage points. These items are tax deductions - meaning you can deduct them from your total taxable income. Of course, some of these will not apply if you are paying cash.
 

Does It Make Sense To Buy With Cash?

Here is where it all depends on your particular situation. For one, recent tax revisions that now offer one to take a standard deduction may not necessarily make a big difference as it may be best just to take the standard deduction. The other thing to figure out is the cost of finance. Add up how much it will cost to borrow the money to finance the home over the 15 or 30 years that you carry the mortgage for. While you may lose these tax benefits it may be better or cheaper to pay cash in the long run.
 

Do You Need To Report a Purchase to the IRS?

The answer is you just might. The IRS does have a form “8300”  that depending on where you are buying a home the IRS may be looking for this form to be completed. While wire and bank transfers are the norm for cash transactions and have their mechanisms in place for reporting and documenting, check with your accountant and title agent to see if you need to do this.
 

How Do You Pay Property Taxes?

Before your closing, the title agent will look up the taxes that have been paid and the effective dates which will then determine what is owed by the buyer and seller. These amounts will be on the closing document but really have no difference whether paying cash or financing. What does differ is the way you pay your taxes going forward. For those with a mortgage, your taxes will be collected in a prorated amount each month by the lender. Your lender pays them in full when they are due. If you pay cash for your home then you will pay your property taxes just like you pay any other bill when it comes due.

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