There are some things to consider when you are not financing
Cervone, Deegan + Associates knows that purchasing a home with cash seems like it is straightforward. You can save some money and time with lower closing costs, no financing contingencies or required appraisals that can make a cleaner deal. 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 the details of this type of transaction.
What Tax Breaks Do Homeowners Get?
Generally homeowners can take advantage of deductions on their taxes. These will include property taxes, mortgage interest, mortgage insurance premiums (PMI) and mortgage points. These items are common tax deductions which means that you can deduct them from your total taxable income each year when you file. Of course some of these need not apply if you are paying cash.
Does It Make More Sense To Buy With Cash?
Here is where it all depends on each buyer’s unique situation. For one, recent tax changes that now offer one to take a standard deduction may not necessarily make too big of a difference as it may be best just 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 to finance the home over the 15 or 30 years that you would the mortgage for. While you may lose these tax benefits it may be better or cost you far less in the long run to pay cash.
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 want this form to be completed. Wire and bank transfers are typical for cash transactions and have their mechanisms in place for reporting, but be sure to check with your accountant and title agent to see if you need to do this.
How Are Property Taxes Paid?
Before your closing the title agent will research the taxes that have been paid and the effective dates which will then determine what is owed by both the buyer and seller. These figures will be recorded on the closing document, but really have no difference whether paying cash or financing. What does in fact matter is the fashion in which you pay your taxes from that point going forward. For those with a mortgage your taxes will be collected in a prorated amount each month by your lender. Your lender pays them in full when they are due each year. If you paid cash for your home then you pay your property taxes on your end directly just like you pay any other bill when it is due.