As a homeowner, you may be familiar that you can deduct the interest and property taxes from your income tax returns. You may also understand that there are substantial capital gains exclusion for qualified sales of up to $250,000 if single and $500,000 for married filing jointly.
However, did you know that keeping up records could earn you money when you sell your house? You want as much money possible available when you go to buy your next home, right? YES!
Let me explain in more detail. New homeowners should get in the habit of keeping all receipts and paperwork for any improvements or repairs to the home. Existing homeowners need to be reminded as well, in case they have become lax in doing so.
These expenditures won't necessarily benefit in the annual tax filing but may become valuable when it is time to sell the home because it raises the basis or cost of the home.
For instance, let's say a single person buys a home that costs $350k and appreciates at 6% a year. Twelve years from now, the house will be worth $700,000. $250,000 of the gain will be exempt with no taxes due, but the other $100,000 will be taxed at long-term capital gains rate. At 15%, that would be $15,000 in fees owed.
Assume during the time the home was owned that a variety of improvements totaling $100,000 had been made. The adjusted basis in the houseas would be $450,000, and the gain would only be $250,000. No capital gains tax would be due.
Some repairs may not qualify as improvements, but if the homeowner has receipts for all the money spent on the home, the tax preparer can decide at the time of sale. Small dollar items can add up to substantial amounts over many years of homeownership.
You can download a Homeowner's Tax Worksheet that can help you with this recordkeeping. The important thing is to establish a habit of putting receipts for home expenditures in an envelope, so you'll have it when you are ready to sell.
You may also like to read: Why Buying a Home Right Now May Save You Big Bucks