Tax Considerations For Cash Buyers
Paying cash for your home can change things with respect to taxes
Buying a home with cash seems like it would be pretty straightforward. You can save both money and time with lower closing costs, no financing contingencies or necessary appraisals. However, there are some things that may be less obvious surrounding things like property taxes, tax deductions and reporting. Here is a closer look at some of these factors.
What Are The Tax Benefits That Homeowners Get?
In general homeowners can take advantage of deductions on their taxes including property taxes, mortgage interest, mortgage insurance premiums (PMI) and mortgage points. These items are tax deductions which means you can deduct them from your total taxable income. Some of these would not apply if you are paying cash.
Is it Wise To Buy With Cash?
This all depends on everyone’s personal situation. For one, recent tax changes that now offer one to take a standard deduction may not necessarily make much of a difference as it may make more sense to take the standard deduction. The other thing to consider is the cost to finance. Calculate how much it will cost to borrow the money for the home over the 15 or 30 years that you have the mortgage for. While you may lose some tax benefits it may be best or be a lot cheaper to pay cash instead.
Do You Need To Report a Purchase to the IRS?
Well, you might. The IRS does have a form “8300” that depending on the location you are buying a home the IRS may be wanting to have this form completed. While both wire and bank transfers are the norm for cash transactions and have their mechanisms in place for reporting, it is still wise to double check with your accountant and title agent to see if you are required to do this.
How Do You Pay Your Property Taxes?
Before your closing day the title agent will research what taxes that have been paid and the effective dates which will then dictate how much money is owed by the buyer and seller. These figures will be listed on the closing document, but really have no difference whether paying cash or financing. What does matter is the manner in which you pay your taxes once you own the home. For anyone who has a mortgage your taxes will be collected in a prorated amount each month by your mortgage company and held in escrow. Your lender then pays them in full when they come due. If you pay cash for your home then you will pay your property taxes similar to how you pay any other bill when it comes due.