Keeping full and accurate homeowner records is vital for determining not only your home deductions but also the basis* or adjusted basis of your home. These records include your purchase contract and settlement papers if you bought the property or other objective evidence if you acquired it by gift, inheritance, or similar means.
You should also keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis. Here are some examples of the improvements:
o Putting an addition on your home
o Replacing an entire roof
o Paving your driveway
o Installing central air conditioning
o Rewiring your home
o Assessments for local improvements
o Amounts spent to restore damaged property
In addition, you should keep track of any decreases to the basis. Here are some examples:
o Insurance or other reimbursement for casualty losses
o Deductible casualty loss not covered by insurance
o Payment received for easement or right-of-way granted
o Value of subsidy for energy conservation measure excluded from income
o Depreciation deduction if home is used for business or rental purposes
How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. And you must keep these records for as long as they are important for the federal tax law.
Keep records that support an item of income or a deduction appearing on a return until the period of limitations for the return runs out. (A period of limitations is the limited period of time after which no legal action can be brought.)
For assessment of tax, this is generally three years from the date you filed the return. For filing a claim for credit or refund, this is generally three years from the date you filed the original return or two years from the date you paid the tax, whichever is later. Returns filed before the due date are treated as filed on the due date.
You may need to keep records relating to the basis of property (discussed earlier) longer than the period of limitations.
Technically, basis is needed to determine gain on home sale (loss is not deductible). That need has diminished for most homeowners now that gain up to $250,000 ($500,000 in some sales by married couples) is tax-exempt.
Basis is also important in case of casualty loss, on conversion of the home to business use, or where there''''''''s a gift of the home (in this case, important to the donee),
Keep those records as long as they are important in figuring out the basis of the property. Generally, this means for as long as you own the property and, after you dispose of it, for the period of limitations that applies to you.
If you have any questions as to what items are to be considered in determining basis, please give a call to Mukesh Maker. His website is www.taxmaker.com
*Basis in simple terms means purchase price plus all major improvements made to the property. In case of rental real estate, depreciation claimed has to be adjusted to arrive at the basis.
Mr. Maker is a certified Public Accountant and serving the South Asian community since 1993.
Disclaimer: Please use this channel at your own discretion. These articles are contributed by our users. We are not responsible or liable for any problems related to the utilization of information of these articles.
View All Contributions