Paying all cash what are the tax benefits

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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
5y

What a bunch of horse sh*t.  So you can't take depreciation if you don't have debt?  LOL

The tax advantages are you will no longer get a -70% return.  Give the bank $10k in interest and the IRS gives you $3k back.  That's your 'tax benefit'.

The real savings happen when you buy without a loan.  Saves me $5k in borrowing costs, bs appraisal and bs lenders insurance every time. 

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  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    5y

    There are zero tax benefits to having a property paid in full. 

    In fact, the opposite is true.  Properties with leverage have better net tax savings because paper depreciation losses typically wipe out any taxable income.

    9Reply
  • John Teachout
    Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
    5y

    A paid off property has the same tax implications as one with leverage. Your cash flow if it's paid for will be higher if it's a rental so you'll have more net income and will of course have to pay tax on that. Interest on the loan would be deductible but then, you're paying interest on the loan...

    A way to think about is that you pay tax on profit. If you don't have profit you won't pay taxes but don't you want some profit???

    4Reply
  • Dan Schwartz
    Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes
    5y

    @Greg Scott paid off properties still depreciate for 27.5 years.  Without the mortgage interest to pay, the income may be higher and less of it offset by depreciation, but the depreciation does not change when it’s paid off vs mortgaged (unless the full depreciation has been already taken, which I don’t think was in the scope of the OP’s questions).  Just clearing that up.  

    4Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    5y

    What a bunch of horse sh*t.  So you can't take depreciation if you don't have debt?  LOL

    The tax advantages are you will no longer get a -70% return.  Give the bank $10k in interest and the IRS gives you $3k back.  That's your 'tax benefit'.

    The real savings happen when you buy without a loan.  Saves me $5k in borrowing costs, bs appraisal and bs lenders insurance every time. 

    12Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    Originally posted by @Steve Vaughan:

    What a bunch of horse sh*t.  So you can't take depreciation if you don't have debt?  LOL

    The tax advantages are you will no longer get a -70% return.  Give the bank $10k in interest and the IRS gives you $3k back.  That's your 'tax benefit'.

    The real savings happen when you buy without a loan.  Saves me $5k in borrowing costs, bs appraisal and bs lenders insurance every time. 

     Preach it Steve..  you beat me to it..  I can tell you more people are going to be far more happy and long term wealth as they shed debt.. Not keep acquiring debt.. There is a time and place for both !!

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    5Reply
  • Maksu Ize
    Investor · Vancouver · Member since 2021 · 165 posts · 137 votes
    5y

    There are none.

    1Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 4k+ votes
    5y

    The difference between an all-cash deal and one that is financed is the responsibility of paying interest payments.

    You would not have an interest deduction.

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  • Susan Maneck
    Investor · Jackson, MS · Member since 2014 · 1k+ posts · 769 votes
    5y

    It isn't so much a tax benefit but if you invest in a place like Mississippi you often can't get loans for the cheaper properties. For instance, the closing costs on a 30K house just doesn't make sense. I used to get first-place HELOCs a year after I'd buy a property but WF recently stopped offering those. 

    1Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    5y

    I don't know or care about the tax benefits...I just like being free and clear. It feels great and that is immeasurable in terms of $$

    6Reply
  • Delbert Standifer
    OP
    Rental Property Investor · Carson, CA · Member since 2019 · 185 posts · 74 votes
    5y

    @Susan Maneck what is the average/typical closing cost on a 30k property in Mississippi?

    0Reply
  • Susan Maneck
    Investor · Jackson, MS · Member since 2014 · 1k+ posts · 769 votes
    5y
    Originally posted by @Delbert Standifer:

    @Susan Maneck what is the average/typical closing cost on a 30k property in Mississippi?

    To be frank, I've never known anyone to get a conventional mortgage on a 30K house but I'm pretty sure it is about the same as a big mortgage. When WF offered to refinance a house  on which I only owed 55K they wanted about 5K in closing costs even though I wasn't taking a cash out and the mortgage length would remain the same. I'd say about 4K would be more common. For the HELOCs I used to get from WF all I'd have to pay was the appraisal.  

    0Reply
  • Niti Bhat
    Indianapolis, IN · Member since 2020 · 33 posts · 8 votes
    5y

    We were also thinking on similar lines. We bought 3 homes, 1 cash and 2 on loans. With the closing costs and appraisal fee it did not feel like a great deal, and were wondering if it’s worth to take loans? Although there is decent cash flow on all of them.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    Originally posted by @Susan Maneck:

    It isn't so much a tax benefit but if you invest in a place like Mississippi you often can't get loans for the cheaper properties. For instance, the closing costs on a 30K house just doesn't make sense. I used to get first-place HELOCs a year after I'd buy a property but WF recently stopped offering those. 

    for this very reason is why I did well over 1500 loans in Jackson MS back in the day..  there was a huge void there of players that wanted to fool with these low value assets.. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    Originally posted by @Susan Maneck:
    Originally posted by @Delbert Standifer:

    @Susan Maneck what is the average/typical closing cost on a 30k property in Mississippi?

    To be frank, I've never known anyone to get a conventional mortgage on a 30K house but I'm pretty sure it is about the same as a big mortgage. When WF offered to refinance a house  on which I only owed 55K they wanted about 5K in closing costs even though I wasn't taking a cash out and the mortgage length would remain the same. I'd say about 4K would be more common. For the HELOCs I used to get from WF all I'd have to pay was the appraisal.  

     PS  Susan did U have to evacuate  ????  cant get over the fires in CA last 5 or 6 years.. we always had fires every year but not liek these. 

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  • Susan Maneck
    Investor · Jackson, MS · Member since 2014 · 1k+ posts · 769 votes
    5y

    Yes, I did. Actually I left South Lake Tahoe with my mother just a few hours before we got the evacuation warning and a day before it became mandatory because I knew the wind was shifting and the air was getting so bad. We went to June Lake near Mammoth where the sky was blue after weeks of smoky skies. Stayed in a funky old motel which had a balcony overlooking the lake and a kitchenette. Best part of it was they were able to supply my 89 year old mother with a motorized recliner since she no longer sleeps in a bed. They also provided other amenities important to the elderly. We just returned to Tahoe yesterday. It is still smoky but to be honest Nevada is getting the worst of the smoke. I wasn't worried that our house would burn down but I had a condo much closer to the fire which I was less sure would make it. Fortunately both our properties were fine. More bears in town now. There were a number of break-ins during the evacuation, about six of them on the part of human miscreants and 15 on the part of bears. 

    1Reply
  • Bob ReinhardBusiness Member
    Lender · Patterson, NY · Member since 2017 · 488 posts · 186 votes
    5y

    @Delbert Standifer

    Ditto @greg scott

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    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y
    Originally posted by @Greg Scott:

    There are zero tax benefits to having a property paid in full. 

    In fact, the opposite is true.  Properties with leverage have better net tax savings because paper depreciation losses typically wipe out any taxable income.

     Depreciation is the same either way. The only thing you lose is mortgage interest decoction, but if your business is profitable, you can claim the 20% pass through tax deduction. it is about a wash on taxes, but you are not stuck paying all that interest. Look at it this way, if you are paying $10,000 a year in interest expense, you can get back maybe $250 worth of that in reduced taxes. If I avoid that $10,000 in interest expense, I can get $200 reduction in taxes for that added profit. I am making thousands more than you in that example and paying about the same for taxes. I think this expires after 2025, but it is pretty nice right now for those businesses that show a tax profit.

    The biggest benefit of taking loans versus cash is leverage. I can buy 4X the property value with the same amount of cash. That is where the power is, not in the taxes.

    2Reply
  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    5y
    Originally posted by @Steve Vaughan:

    What a bunch of horse sh*t.  So you can't take depreciation if you don't have debt?  LOL

    The tax advantages are you will no longer get a -70% return.  Give the bank $10k in interest and the IRS gives you $3k back.  That's your 'tax benefit'.

    The real savings happen when you buy without a loan.  Saves me $5k in borrowing costs, bs appraisal and bs lenders insurance every time. 

     You did not interpret my post properly.  I NEVER said there is no depreciation when you have a paid-in-full property.   But, when you do have a paid-in-full property it usually kicks out more cash flow than depreciation. 

    Which has the better tax benefits?

    1. A paid in full property
    2. Two similar properties with 50% leverage

    The latter will have far more tax benefits because of depreciation.  Not only that, it likely cashflows better and is less of a target for lawsuits.

    0Reply
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