Buying a house with cash seems like a straightforward approach: lower closing costs, fewer hurdles, less hassle. And while that’s mostly true, there are some elements that may be a little less transparent: property taxes, income tax deductions, and tax reporting.

So we decided to ask an expert. Ken Crotts, a graduate of the Real Estate Institute for Investing who practices in Seattle, helped walk us through some of the tax implications when you purchase a home with cash.

What tax breaks do homeowners receive?

• Property taxes. The amount you pay in property taxes is deductible on your federal income taxes, up to a limit of $10,000 if you’re married and filing jointly, or $5,000 if you’re single or married and filing separately. As a cash buyer, this is a deduction you could claim.
• Mortgage interest. Interest paid on a home loan is tax deductible (with some limits). But as a cash buyer this wouldn’t apply to you because you don’t have a loan.
• Mortgage insurance premiums. Similarly, mortgage insurance (MI) premiums can be deductible depending on your income, but cash buyers wouldn’t be able to claim this, either.
• Mortgage points. Mortgage points (which is really just interest paid upfront) can be deducted for the tax year the loan was signed. But –– you guessed it –– cash buyers don’t get this deduction.

It’s important to remember that tax deductions are not tax credits. Deductions affect your taxable income (the amount of money you make that is taxed). Credits reduce your bottom-line tax liability (the amount that you owe), or in some cases, increase your refund. Homeowners are entitled to deductions, not credits.

From a tax perspective, is it unwise to purchase a home with cash?

Since most of the above tax deductions center around a mortgage, cash buyers may wonder if they’re missing out on tax savings by not obtaining a loan. The answer to this dilemma is situation-specific, but there are some additional implications to consider.

First of all, homeownership deductions may not even affect you under current tax laws. In years past, the deductions afforded to homeowners made a significant impact on their taxes. However, with the implementation of the Tax Cuts and Jobs Act in 2017, the standard deduction rose to $12,000 for singles and $24,000 for couples –– almost double what it was before the act was passed.

Under this act, many homeowners find that itemizing their deductions (adding up all the above categories that apply to them) is yielding a number that is less than the standard deduction, even with a mortgage loan. For cash buyers, this means you may not be missing out on any tax savings because many homeowners (especially those with homes valued less than $300,000) end up taking the standard deduction.

In addition, cash buyers can talk to their accountant about other home-related deductions that don’t hinge on having a mortgage. For instance, you may qualify for a moving expenses deduction, and there’s a home office deduction for self-employed or contract workers.

And finally, buyers can weigh the numbers to determine whether or not paying cash is the best course of action for them. Consider that a $250,000 loan with an interest rate of 4% will end up costing $179,674 in interest over 30 years. Cash buyers would be able to save that entire sum, even though they may potentially lose the tax deduction.

On the other hand, tying up cash in a house limits investment potential. Talk to a financial advisor if you’re wondering about the wisdom of a cash purchase. At the end of the day, your cash purchase should be one you feel good about regardless of the tax implications.

Do cash homebuyers need to report their purchase to the IRS?

The short answer here is: Maybe.

In an effort to curtail money laundering, there are tax laws that require large cash purchases and sales to be reported using IRS Form 8300. The reporting rules state that any cash transaction over $10,000 should be reported, but real estate transactions in general may be exempt from the law’s definition of “consumer durable assets.”

Keep in mind, though, that as a rule of thumb, this disclosure requirement usually only applies to physical cash transactions (like with hundred-dollar bills in hand), not bank transfers, where there are reporting measures already in place.

However, under the U.S. Treasury’s Geographic Targeting Order, there are certain areas of New York, California, Texas, and Florida where cash real estate purchases over a certain threshold must still be reported. This order includes physical cash as well as wire and bank transfers (the more typical method of buying a house “with cash”).

If you’re unsure about the requirements in your area, consult your accountant and your title agent. The title agent should be the one to file Form 8300 on your behalf, anyway.

How do you pay property taxes when you buy a house with cash?

Whether you pay cash or get a mortgage loan, the current year’s property taxes for your new home will be prorated and paid at closing.

The amount is determined depending on how and when property taxes are collected in your location. Some counties collect taxes for the year past, and some collect for the coming year. Most collect taxes annually, but some collect biannually.

Prior to closing, your title agent will look up the taxes paid and the effective dates. They will then use the date of sale to determine the amount of tax owed by both the buyer and the seller. The figure can be seen on your closing statement, which should be available to you at least three days before closing.

There’s really no difference in this process for cash buyers and buyers who obtain a home loan. Either way, your portion of the current tax will be due in cash at closing.

How do you pay property taxes after you buy a house with cash?

In the years after closing, you’ll be responsible for paying your property tax directly to your local tax office. This is different than most mortgage-based buyers, whose property taxes are usually built into their monthly payments, kept in escrow, and paid by the lender.

Crotts says self-payment of property taxes shouldn’t be seen as a problem for cash homebuyers. “The title company records the sale at the county recorder’s office,” he says. “They register your name to the property and send out your property tax bill. And they’ll give you reminders; they want their money!”

In many counties, you’ll receive a proposed property tax bill a few months prior to the due date. Check over that document carefully and make an appeal early if you feel there’s any discrepancy. Also, take note of any discounts available for early payment.

Once you receive the tax bill, it can be paid just like any other bill. Often there’s an online option, a check-payment option, and an in-person option.

There is no difference in the amount of property tax for cash buyers, only in the method of payment. With this in mind, cash buyers will need to budget throughout the year so they are prepared to make the tax payment personally when it’s due.

Buying a home with cash may not yield many tax savings, but it could bring you plenty of peace of mind. Ask your real estate agent about the pros and cons of a cash purchase in your particular situation.