I Have Cash in Hand to Buy a House: What Do I Report to the IRS?
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Jody Ellis, Contributing AuthorClose
Jody Ellis Contributing AuthorJody Ellis is a freelance writer with more than 15 years of experience in the writing industry. Her work includes copywriting and content marketing for real estate professionals, stories covering real estate trends and housing markets, and varied articles on decor and design. In addition to buying and selling several homes herself, she's also owned and managed rental properties, and previously worked in mortgage lending.
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Alexandra Lee, Junior Associate EditorClose
Alexandra Lee Junior Associate EditorAlexandra is a junior associate editor of HomeLight.com. Previously, she served as a writer and social media manager at Santa Barbara Life & Style Magazine, in addition to interning at the nonprofit honors society Phi Beta Kappa. Alexandra holds a bachelor's degree in communication and global studies from UC Santa Barbara, and she has three years of experience reporting on topics including international travel, luxury properties, celebrity interviews, fine dining, and more.
Most homebuyers are going to need a mortgage loan to buy a house, but these days it’s not unheard of for buyers to purchase their home with cold, hard cash. Whether it’s money saved, equity from the sale of a previous home, a cash windfall, or using a cash offer platform from a lender, buying a home for cash has become more and more common.
As a buyer, you might think that paying cash for a house is the easiest, most hassle-free way to buy — and quite often, it is. But when large amounts of cash change hands, there is one thing you always need to consider: tax ramifications.
Taxes aren’t something we really like to think about, but it’s important to know what, if anything, you need to do in terms of what the IRS might require when you buy a house with cash. Do you report the sale? Are you responsible for any additional taxes or fees? And what about potential write-offs for the purchase? Do you still qualify for any kind of tax break?
We’ve talked to real estate agents who are in the know, as well as tax specialists who understand just what the IRS might require from you as a cash buyer, to help you decide whether you should consider paying cash for that new home.
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Who buys homes for cash, and how does it work?
Santa Barbara real estate agent Maureen McDermut, who has more than 30 years of experience in the industry, says that right now, cash buyers account for about 80% of her clientele.
“A lot of people pay cash, especially in situations where there are multiple offers,” she says. “Cash is king, and it does speak to people.”
McDermut says that in her area, where there is a fairly wealthy demographic, there are cash sales on a regular basis. But cash sales also seem to have become a big bargaining chip for buyers across the country.
According to a survey by the National Association of Realtors (NAR), as of January 2024, the proportion of buyers paying cash was 32%, marking the highest rate since 2014. In 2023, the metro areas with the highest concentration of cash buyers were Macon, Georgia, where 61.5% of homes were purchased with cash, Naples, Florida, with 58.9%, and Myrtle Beach, South Carolina, at 56.3%
Why so many cash transactions?
In markets where inventory is low, bidding wars aren’t uncommon, and a cash offer can get a seller’s attention quickly.
Cash transactions tend to be fairly streamlined, McDermut says, and closings often take place in as few as 10 days, as opposed to the usual 30 or so days it takes when using a mortgage lender.
“People pay cash for the ease of the deal,” she says. “It closes quickly, and they often waive any appraisals or contingencies.”
While paying with actual wads of cash isn’t really recommended, buyers can use a cashier’s check or personal check. Title companies will usually advise using a wire transfer, which is the safest way to ensure your money gets deposited correctly.
Do you have to report your purchase to the IRS?
According to Senior Tax Consultant Tony Watson of Robert Hall & Associates, the burden of reporting the sale of the home goes to the sellers.
“The seller of the property reports the 1099-S gross sales amount and their individual information for the property,” Watson says.
The IRS is primarily concerned with capital gains, which is the net profit made from a home sale. Sellers who have used the house as their primary residence for fewer than two years will have to report capital gains, and may have to pay some taxes on that profit. But as a buyer, you don’t have to worry about any of that.
“For the purchaser, the only thing that reports to the IRS is the deduction of property taxes paid through escrow,” Watson says. “Since the property is bought for cash, there is no debt, therefore no mortgage interest.”
Property taxes are really the only reason why the IRS would be concerned with your home purchase, and that would only be if taxes went unpaid on the property and they had to place a lien on it.
Do you have to report your purchase to anyone else?
While you don’t report the purchase, depending on the details of the sale, your title company may be required to report the transaction to the Financial Crimes Enforcement Network (FinCen).
You should also keep in mind that cash-based transactions of more than $10,000 are tracked by FinCen through Form 8300, which must be filed by the seller. Breaking that transaction into smaller amounts to avoid having to report them is illegal, and you will get in trouble if you get caught.
Do I lose out on any tax benefits when I pay with cash?
“Don’t expect massive write-offs or to save lots in taxes if you purchase with cash,” Watson says. “Depending on if the home is being used as a primary residence or a rental property, [some of] the closing costs may or may not be deductible. And at the end of the day, the tax savings would be minimal.”
Paying cash for a house means you don’t get the write-offs that go with a mortgage loan, but some buyers will actually use “delayed financing,” where they refinance the home after the purchase is complete so they can take advantage of any potential tax benefits.
“I have buyers who pay cash, then refinance and pull a loan out,” McDermut says. “As long as they refinance within allowed time limits, they can still get the tax breaks of a mortgage loan.”
McDermut adds that buyers pay cash to get into a house quickly, since cash is enticing to sellers and the house can close right away. Then, they immediately pull that equity back out of the house through a refinance and invest elsewhere.
Is buying with cash really the way to go?
Like most things in life, it depends. If your financial situation affords a cash purchase for a home, there are certain benefits, such as not having to wait out the mortgage loan process, and potentially being more attractive to sellers who want a quick sale.
There are, however, some benefits to carrying a loan on the home.
“Debt is a good and bad thing,” Watson says. “It is often best, from a wealth-building perspective, to use other people’s money to make money. As long as interest rates are low, borrowing can be a good thing if that debt is affordable to the buyer.”
Watson does caution that while there are tax write-offs associated with having a mortgage, it’s up to the buyer to determine what makes the most sense for them.
“The write-offs are great,” he says, “but it doesn’t always save the taxpayer as much as it costs them in the long run.”
Regardless of how you decide to pay for your new home, getting help from an experienced agent is key. They will discuss the pros and cons of paying cash, guide you toward a tax specialist to help answer any questions, and can make sure that you’ve got all the information you need to make an informed decision about your purchase.
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