Buying and selling real estate is not rocket science but all the small details begin to add up to some complicated situations. For instance I have clients that purchased property without financing in order to make their offer more desirable to the seller. This doesn’t mean these clients wanted to park all that cash in the property forever, so after they became the owner they applied for a loan to free up cash and qualify for the Mortgage Interest Deduction.
The Mortgage Interest Deduction allows a borrower to write off the interest they pay on home (principle or second home) financing each year. For many this is a powerful deduction.
The twist is that per the IRS a buyer has 90 days to complete a loan process after the close of escrow in order to be eligible for the home loan interest deduction. This means that if, for what ever reason, a homeowner is not able to complete financing within 90 days after purchasing a home the interest on the loan will NOT be tax-deductible!
The best advice in these situations is to begin the financing paperwork before ownership transfers to the all cash buyer.
It is in the details that the important things happen.
Always speak to tax professional when deciding on the tax consequences of purchasing or selling a home.