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Things to consider before paying Cash

Before you pay cash for a home

Before you pay cash for a home, ask yourself if there is a possibility, at some point in the future, you might put a mortgage on the home and would want to deduct the mortgage interest on your federal tax return.

Current federal tax law allows homeowners to deduct the interest on up to $750,000 in acquisition debt used to buy, build or improve a property.  When a person pays cash for a home, the acquisition debt is zero.  The only way to increase the acquisition debt is to make and finance the improvements to the home.

As with many IRS regulations, there are exceptions to this rule.  If a mortgage is secured on the first or second home within 90 days of the purchase closing, the debt is considered acquisition debt.  The interest on the funds used to purchase the home can be deducted on up to $750,000 of the mortgage balance.

Assuming a borrower has good credit, the ability to repay the loan and the home justifies the loan, lenders are willing to make mortgages for homeowners.  It does not mean that the interest on the mortgage will be deductible.

Additional information can be found in Publication 936, Home Mortgage Interest Deduction, of the Internal Revenue Service at IRS.gov.

To deduct home mortgage interest, you must file Form 1040 or 1040-SR and itemize deductions on Schedule A.  The mortgage must be secured debt on a qualified home in which you have an ownership interest.  Interest on home equity loans is only deductible if the borrowed funds are used to buy, build or substantially improve the taxpayer’s home that secures the loan.

If you answered yes or even maybe to the question first posed in this article, contact your tax professional to determine the best way to approach your individual situation.  For more information, download the Homeowners Tax Guide.

Optimize Your Sales Price

Optimize Your Sales Price

Doing a lot of work to a car before you trade or sell it to a dealer is not generally a good idea.  In most cases, you won’t recapture the cost of the repairs.  They can do the repairs for a less than you can.  Not to mention, you are selling to a wholesaler who needs to sell it again to the end user and still make a profit.

A home sale is totally different.  The owner is selling the home to an end user.  Since the buyer, in many cases, is using their available funds for the down payment and purchase costs, they don’t have money to spend on repairs or decorating the home.  They would need to live in it “as is” for a while which may not be as appealing as finding a home that is refurbished, up-to-date, and ready to move into.

Even if the buyer would be willing to get a home improvement loan after the sale, it would be a separate loan at a higher interest rate making their payment higher than financing it all in one mortgage at the lower first mortgage rates.

The seller may experience some inconvenience going through the remodeling process, but it will, most likely, result in a higher sales price in less time.  Occasionally, sellers say they’ll let the buyer choose their own colors but not all people have the imagination to know what something will look like after it is finished.  It is better to go ahead and get the work done before putting it on the market.

The bathrooms and kitchen are the most important rooms to update.  If the finish on the cabinets is bad, have them painted.  New countertops and appliances can make a world of difference.  Paint, countertops, and fixtures in the bath give the home a great feel.

In addition to the repairs, a major cleaning and decluttering can make a home look and feel better than the competition.

The first step is to go through the home and pack up or get rid of things you don’t need or things that detract from the home like excess furniture, exercise equipment, personal artwork, etc.  Now, do the same with the closets and cabinets.  By getting rid of things, there will be more room and they’ll look larger.

Next, walk across the street from your house and give it a critical look.  How is the drive-up appeal?  Would you want to go inside to see the rest if you were a buyer?  Are the trees and shrubs trimmed?  Yard cleaned up?  Do you have blooming flowers in the beds?  Does the front door and mailbox need a new coat of paint?  Do you need to power wash the outside of the home and the sidewalks and driveway? Do the windows need washing?

Buyers are visual people and beauty is always rewarded.  Restaurants know that people eat with their eyes first and they go to a lot of effort to plate the food so it is visually appealing.  The same approach works for selling a home.  Ask your agent if they have ever taken a buyer to a home that refused to go inside because they didn’t like the looks from the street.

Your real estate professional can make specific recommendations and assist you in finding someone to do the work.  This is what we do.  TRUST US!