You might think that a person who pays cash doesn’t have many concerns or at least not the same ones as most people. Roughly, about 9% of people paid cash for their home last year with a considerably higher percentage paying cash this year.
The first question that comes to mind when I hear someone say they want to pay cash for a home is “Do you think that you might put a loan on the home in the future?” Paying cash may affect your ability to deduct the interest on a mortgage placed on the home at a later date.
Currently, a homeowner may deduct the interest on up to $1 million of acquisition debt. Paying cash for a home establishes acquisition debt at $0. At that point, the only deductible interest would be home equity debt which is limited to $100,000 over acquisition debt. You can get more information about this from IRS Publication 936.
On the surface, paying cash certainly seems simple but it may have consequences later. As a Residential Finance Consultant, I can point out the areas when advice from a tax professional is in order.