The stories are true about Denver! Many buyers are paying cash for homes here in Denver. And not just the low end rentals but some very nice homes in the one million dollar range. I get the question "where are they getting their money?" Imagine owning a $2,000,000 home and having bought it in 1995. It is mostly paid off and you paid 600k for it? Well there is a lot of equity there and folks will use it to buy their principle residence and maybe a rental or two. Plus the capital gains treatment of selling a principle residence allows for some substantial gains, tax free. But before you decide to make such a move to be close to the grand kids or mom & dad, read on...
The National Association of REALTORS® reports in its 2016 Profile of Home Buyers and Sellers that 12% of all buyers paid cash for their home.
Before paying cash for a home, a buyer should decide if they might put a loan on the home in the near future. It may affect the ability to deduct the interest on a mortgage placed on the home at a later date.
Homeowners can currently deduct the interest on up to $1 million of acquisition debt which are the borrowed funds used to buy, build or improve a home. Paying cash for a home establishes acquisition debt at zero. The only deductible interest to the owner would be home equity debt which is limited to $100,000 over acquisition debt.
Paying cash certainly seems like a simple decision but it may limit a homeowner’s ability to deduct interest on a future mortgage. You can get more information about this from IRS Publication 936 or from your tax professional.
Should you want to visit about investing in a home in Denver as a principle residence, or as a rental, we should talk.
When you want to move to a sunnier climate, we should visit about selling that Denver residence. Let's plan a visit.