Keeping records on your home

Reasons to keep your home's cost records

Q. When we sold our former home for $450,000 last year, the agent told me he didn't have to notify the IRS of the transaction. That makes me wonder if I need to keep records relating to our new home for tax purposes. Can I discard them?

A. Better not. If you sell your present home before living there for at least two years, the sale will have to be reported. Even on a later sale, a report will be required if the price is more than the amount of gain you can exclude ($500,000 for a married couple, $250,000 for a single owner). Then you'd need records to prove your cost basis. Or suppose you eventually move but rent your present home instead of selling it. In that case, your records would support the depreciation deductions you could take.

Another possibility is that you might give the house away rather than sell it. If so, the recipient will need your records, because his or her basis for gain on a future sale is what you paid to buy and improve the house, not its market value at the time of the gift. Finally, the records would be useful in claiming a loss if your property ever suffers damage.