Top 5 Ways to Use Your Tax Return for Real Estate
As you all know due to Covid-19 the IRS has extended the tax filing deadline from April 15th to July 15th. Illinois has extended its state tax filings until July 15th as well. Here are the top five things that you could do with your tax return related to real estate.
Earnest Money or Down Payment
No. 1 is use your tax return as your earnest money or even part of your down payment on a house depending upon how big of a tax return you receive. Remember if you're doing an FHA loan, you only need 3.5% down. On a $100,000 house that's $3,500. There are a lot of people who can use their tax return for their down payment. Regarding earnest money, it ranges anywhere from $1,000 to about $2,500 depending upon the purchase price of the property. This is another great way to use your tax return for real estate.
Pay Off Debt
No. 2 is to pay off some debts that you can qualify for a better mortgage rate to purchase a house. Lenders look at your debt to income ratio and your credit score. When you pay down debt, that will decrease your debt to income ratio and will help you qualify for a better interest rate because your credit score will have increased. This helps you qualify for a better interest rate on your mortgage. This absolutely pays off in the long run because you spend way less money in interest payments. So you are saving right there just by using that tax return to pay down or pay off debt.
Home Repairs
No. 3 is complete necessary repairs on your house in order to sell it. Make your house show in the best light possible by completing those repairs that you know your house is in need of. For example, is it time to replace HVAC? Perhaps, do some roof repairs? Or even sprucing up your landscaping to improve your curb appeal. Do the work that will put your house in the best possible condition to sell. The value of your house is going to increase because there's less repairs meaning less credits you would have to give to a prospective buyer.
Home Upgrades
No. 4 is to use your tax return to make necessary upgrades to your property that will have the greatest return on investment for you. We all know that the two best places to spend your money to do upgrades is kitchens and bathrooms. If you have an outdated kitchen there are some things that you can do either DIY or using a professional contractor to help you make it more modern and up to date. Using your tax return and putting it towards those upgrades definitely pays off. Whether painting the kitchen or bathroom, change hardware on cabinets, get new appliances, change tile, or a faucet or even install a new tub. Wisely chosen upgrades definitely pay off exponentially when you sell your home.
Pay off State & Federal Liens
No. 5 is to use your tax return to pay off any state or federal tax debt or lien. When you go to sell your house the title company will run a state and federal tax debt search on you and if there is a lien on your property it will prevent you from selling your house until it is paid off. So use your tax return to get those back tax debts and liens paid off so that you can sell your home free and clear and not have any issues with those taxing authorities.
If you are interested in selling, buying or investing in real estate, reach out to attorney Alexis Hart McDowell to help you achieve your goals. Schedule a FREE 15 min. consult at your convenience.
