Do you need a tax return to buy a house?
I hear people say if one wants a loan to buy a house, they need to have tax returns for a loan. But what if a person has say $500,000 all in cash and want to buy a house. Wouldn't this person need to show a tax return to the seller or real estate broker to show his proof of income? I hear people say cash is king but if this guy don't have a tax return or have very little income shown on his tax return like $20,000 a year, wouldn't this guy get denied?
But to those people who do make a lot of money and saved up $500,000 and have proof of income... lets say they were making like $200,000 a year and saved enough to buy a house without borrowing and it showed $200,000 in their tax returns, can this person just pay the seller in cash? Or is cash not preferred?
What is the usual method a person who buys a house pay by? Is it a check, bank wire? But if he pays it all in cash, wouldn't the seller have to bring all that money to the bank to deposit it?
Okay i see many of you guys say you don't need a tax return to buy a house and only if you need a loan. But how would the seller know if that person who has the money for the house paid his taxes or not?
- R PLv 79 years agoFavorite Answer
The seller doesn't need to know what the buyer's tax situation is regardless if the buyer is getting a mortgage or paying cash. And, really, why would the seller even care if the buyers pays taxes or not? All the seller wants is his money for the house.
- ~qx~Lv 79 years ago
One only needs to produce a tax return if one is getting a loan.
If you have the $, that is all you need. Usually a cashier's check is used, but cash could be suspect and a danger and a liability to the real estate company that takes it in.
<"But how would the seller know if that person who has the money for the house paid his taxes or not?
The real estate agent should ask for a bank statement that shows the balance of your account and statement of account activity for the last year. There should be lots of safeguards on this procedure since I knew many people years ago who simply lied and borrowed large amounts of money to show lots of $ to get loans this way.
- Dan BLv 79 years ago
You only need to provide a tax return to your lender (not seller or real estate agent) if you are going to finance the purchase - to prove your income. Cash purchase doesn't need a return because you aren't financing the purchase.
Usually, if a cash purchase, the owner wants certifiable funds, no personal checks, no cash. The buyer would convert his cash deposit to a certified bank draft. It's all handled through bank transfers. If the buyer doesn't have a bank account, the buyer runs the risk of getting robbed between his home (or place where the cash is kept) to the point of sale.
If there's a question about the legitimacy of the funds, the bank may report it to the IRS and the IRS may want to know how you came up with that large sum of money. If you can't prove its source, the IRS may seize it and consider it drug money - you are guilty until proven innocent.
- teran_realtorLv 79 years ago
You need a tax return to get a loan.
Anyone can buy a house with cash. The seller really doesn't care where it came from. You could be a drug dealer, but if you have the cash, you can buy the house.
When it is time to SELL that house, the IRS will get involved though. And if there are no tax returns showing income, but you have half a million dollars to buy a house, the IRS may get involved. That's how they put Al Capone in prison.
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- ibu guruLv 79 years ago
"Cash" transactions are not in actual dollar-bills. You use wire transfer or electronic funds transfer or bank (cashier's) check to actually hand over the full purchase price to seller at closing. You cannot use actual cash! There are serious restrictions - and federal reporting requirements - for cash amounts of $3000 or more (supposedly $10k - but the govt is getting greedy, persnickety, and once you hit $3000 or more, you have serious trouble with the feds). So an "all-cash deal" actually means "I have enough money for the full purchase price in the bank, and my bank will deliver it to your bank."
They might want some proof you really have that kind of money, but you do not need to provide the seller with income tax returns, and there's no lender - who must ask for income tax returns.