Although President Donald Trump has rolled back some of his previously announced tariffs, there are still a number of tariffs in play that will likely affect the cost of goods in the U.S. These include a 125% broad tariff on all Chinese imports, a 10% tariff on Canadian energy, a 25% tariff on all Mexican imports and other Canadian imports, a 25% tariff on all automobiles, a 25% tariff on all steel and aluminum imports, and a 10% minimum tariffs on all other countries.
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These tariffs may affect the cost of items both big and small, but the pricier an item is, the bigger the increase in cost can be. That’s why it’s important for Americans to be particularly mindful when planning for large purchases — such as cars and real estate — amid tariffs.
GOBankingRates spoke with Mark Thompson, regional managing director of Citizens Private Bank, about the broader economic implications of rising costs that high-net-worth individuals will need to consider when making major purchases, and how they can best optimize these purchases.
Even high-net-worth Americans will feel the sting if prices get higher due to tariffs.
“Tariffs on imported goods, including luxury items and significant assets such as vehicles, will more than likely lead to increased cost of goods for consumers,” Thompson said. “As the cost of goods go up, consumers experience reduced purchasing power, regardless of how wealthy they are.”
This means that wealthy Americans will need to think more critically about how they fund large purchases.
“The decision wealthy Americans face is whether to pay cash for large purchases or to go the financing route,” Thompson said. “Many high-net-worth individuals will carefully consider whether to preserve liquidity or absorb the additional costs through debt, depending on how tariffs affect pricing for their desired purchases.”
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There are pros and cons of paying for a large purchase with cash that should be considered.
“Paying cash eliminates the interest expense associated with financing,” Thompson said. “For large purchases — like a car, real estate or a piece of fine art — this can result in significant savings. Wealthy individuals with readily available liquid assets might find this the most straightforward, and ultimately cheaper, option in the long run.”
In addition, paying with cash also may come with negotiating power.
“The ability to pay in cash can give individuals leverage for negotiating better terms, such as a lower price or more favorable financing options,” Thompson said.
However, paying in cash reduces liquid assets, which is not always a smart move.
Even if a high-net-worth individual can pay for a large purchase in cash, this might not always be the best option.
“Financing allows wealthy individuals to preserve their liquid assets for other investments or opportunities,” Thompson said. “Instead of tying up a large sum of capital in a single purchase, they can potentially earn a higher return by investing that elsewhere.”
Financing may become a particularly appealing option amid price increases due to tariffs.
“If tariffs are increasing the cost of everyday goods, financing the larger purchases allows individuals to better manage their cash flow more effectively as overall cost of living increases,” Thompson said. “Financing is also beneficial if the interest rate is low, as it allows consumers to take advantage of inexpensive debt while preserving funds for other financial opportunities.”
When deciding whether to pay for a large purchase with cash or financing, wealthy individuals also need to take into account the tax implications.
“The tax implications are generally neutral when paying with cash — there are no immediate tax benefits or deductions related to the purchase itself,” Thompson said. “However, depending on your state and whether you itemize deductions, you might be able to deduct the state and local sales taxes paid on a large purchase like a boat or vehicle.”
Financing may also offer tax benefits.
“Financing major purchases can offer consumers the potential to deduct the interest paid on the loan,” Thompson said. “However, the deductibility of interest depends heavily on the type of purchase and the type of loan. Home mortgages, investment interest expenses or business loan interest can fall into this category.”
To better understand how to make the right payment choice from a taxation standpoint, it’s often worth consulting with a professional.
“Navigating interest deductions can be a complex process and it usually requires a tax professional who understands the intricacies of both state and federal tax law,” Thompson said. “It’s critical that consumers are making informed decisions and working with a professional to ensure they’re maximizing their deductions.”
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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This article originally appeared on GOBankingRates.com: Expert: How Wealthy Americans Should Plan for Big Purchases Amid Trump’s Tariffs
