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home purchase with cash: how to use the buyer rebate

1,560 314 June 28, 2020 at 09:43 PM
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Hello, thanks for taking time to read this

I am buying a new construction home with cash and i will get about 12K cashback from my realtor. how do i use this cashback since my closing costs may not be much? i hear people taking mortgage using towards closing costs.

my idea was to take 12K as cash and deduct it from home purchase price. so when i sell, my home cost is 12K less. is this not recommended?

some others suggested to use towards HOA, property taxes, insurance etc. but wouldn't i have to pay taxes on 12K in this case?

also, would realtor withhold any tax on 12K because that be a big bummer and makes no sense if i am going to reduce it from the home price when i sell..

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#2
Quote from RandomSDNeo
:
Hello, thanks for taking time to read this

I am buying a new construction home with cash and i will get about 12K cashback from my realtor. how do i use this cashback since my closing costs may not be much? i hear people taking mortgage using towards closing costs.

my idea was to take 12K as cash and deduct it from home purchase price. so when i sell, my home cost is 12K less. is this not recommended?

some others suggested to use towards HOA, property taxes, insurance etc. but wouldn't i have to pay taxes on 12K in this case?

also, would realtor withhold any tax on 12K because that be a big bummer and makes no sense if i am going to reduce it from the home price when i sell..

Your closing statement should include prop taxes and HOA fees owed for the period I would think. Effectively, just take it as a credit from the realtor on the closing statement and it offsets your closing costs, taxes, fees etc. without being considered income or changing the cost basis of the home to the best of my understanding.
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#3
I would make sure the $12K is not after taxes.
If you receive it as cash or cash equivalent (ie closing cost credit), it MAY be taxable to you.

But overall, I prefer to receive such items as a straight reduction of the sales price. This results in lower property tax (and not just for one year) and maybe even lower insurance cost, depending on other things. Probably slightly lower closing costs as well.

OTOH it works to reduce the comps but IMO not a big enough reason to forego the tax benefit, which is far more direct and tangible, albeit small (but repeating).
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#4
The Realtor rebates I have seen are to be applied to the Buyer's Closing Costs and Prepaid Expenses (i.e. Taxes, Homeowners, etc).

Not sure what State you are in, but Closing Costs will not be anywhere near the rebate amount you mention, however if the title Company can pickup the Taxes for as much forward as possible, along with the Homeowners Insurance annual premium and any reimbursement to the seller that may be applicable (i.e. seller has paid the taxes for a period where you will own the house) you may just have enough. In respect to HOA, in addition to the monthly maintenance being due, most also have an initial fee for new owners which can also be listed on the Closing Statement.

I know I may be stating some things that are very obvious to some, but may also prove helpful to others.

Definitely research the language of the Rebate and confirm where it can be applied to.

Good luck and congratulations on your new home!
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-Adam
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#5
Quote from kacki
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But overall, I prefer to receive such items as a straight reduction of the sales price. This results in lower property tax (and not just for one year) and maybe even lower insurance cost, depending on other things.
I'm not sure how accurate this is. property taxes, at least in the two states i've dealt with, are based on an assessed value. which is based on the land value plus "improvements".
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Quote from BiGspendr
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Stick a milk bone us ur ass, and let the dog eat it. Works like a charm! http://i.slickdeals.net/images/smilies/emot-LMAO.gif
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#6
Quote from dayv
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I'm not sure how accurate this is. property taxes, at least in the two states i've dealt with, are based on an assessed value. which is based on the land value plus "improvements".
Sorry about that, in that I did not consider the difference various counties/states might do it. Here in CA they begin with the sales price and can add up to 2% per year during that ownership. There may be other aspects to it also.

OP you should factor this in.
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#7
Quote from dayv
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I'm not sure how accurate this is. property taxes, at least in the two states i've dealt with, are based on an assessed value. which is based on the land value plus "improvements".

Prop taxes are always based on assessed value to the best of my knowledge. A sale price can be used to justify a challenge to any assessment imposed by a local authority, but usually they are going to start with total sq footage and avg price per sq foot in the area and make adjustments for improvements\issues like pool, patios, decks, detached garages, newer renovations, etc. You are not going to claim the 400k home is worth 350k because you bought it for 350k as a result of 50k reductions for real estate fees plus other give backs for whatever reason...or had your relative sell you it for well below market value...just not going to fly normally.

That is not to say that some 12k can't be deducted from the home price and you hope the local authority just takes the sale price as the appraisal value because they are too lazy to send their appraiser over, but I would not bet on that. Plus, many local authorities do not appraise to actual value but to a percentage below current value because they want to avoid tax appeals by residents. If your 400k home is appraised for ex at 25% less than market at 300k and all homes in the town are similarly under appraised, they just jack up the tax rate accordingly to get the desired revenue and you have no justification to go to court and claim you are over appraised. You have no sales to back it up and your neighbors with similar homes are equally appraised on the low side. It is a game many municipalities have been playing for decades.
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Last edited by YanksIn2009 July 1, 2020 at 09:39 AM.
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