Tax Tips for Homeowners

By Bob Walsmith Jr.
2022 President
Santa Barbara Association of Realtors

You probably don’t have space to store years of tax and insurance paperwork, warranties, and repair receipts related to your home.

But you need that paperwork if you need to prove you deserve the tax deductions you took, to file an insurance claim, or to figure out if your busted oven is still under warranty.

To help you organize your piles of papers, here is a handy checklist of how long to keep tax records.

First, a little background on IRS rules, which informed some of our charts:

•           The IRS says you should keep tax returns and the paperwork supporting them for at least three years after you file the return — the amount of time the IRS has to audit you. So that’s how long we advise.

•           Check with your state about state income tax records. Most states make you keep them as long as the federal government does — three years. But Montana wants you to keep them for five years. And Ohio recommends you hang on to them 10 years. Yes, an entire decade.

•           The IRS can also ask for records for the last six years after a filing if they suspect someone failed to report 25% or more of their gross income. And the agency never closes the door on an audit if it suspects fraud.

Home Sale Records

HOME SALE RECORDS
Document	How Long to Keep It
Home sale closing documents, including closing statement	As long as you own the property + 3 years
Deed to the house	As long as you own the property
Builder’s warranty or service contract for new home	Until the warranty period ends
CC&Rs	As long as you own the property
Receipts for capital improvements	As long as you own the property + 3 years
Mortgage payoff statements (certificate of satisfaction or lien release)	Forever, just in case a lender says, “Hey, you still owe us money.”

Why you need these docs: You use home sale closing documents and receipts for capital improvements records to calculate and document your profit (gain) when you sell your home.

Your deed and mortgage payoff statements prove you own your home and have paid off your mortgage, respectively.

Your builder’s warranty or contract is important if you file a claim. And sooner or later you’ll need to check the CC&R rules in your condo or community association.

Annual Tax Deductions

ANNUAL TAX DEDUCTIONS*
Document	How Long to Keep It
Property tax payment (tax bill + canceled check or bank statement showing check was cashed)	3 years after the due date of the return showing the deduction
Year-end mortgage statements	3 years after the due date of the return showing the deduction
Tax returns	3 years from the date you file your return or 2 years from the date you paid the tax, whichever is later

Why you need these docs: To document you’re eligible for a deduction or tax credit in case you’re audited by the IRS.

*These deductions are relevant if you itemize. The standard deduction has been increased, which means fewer people will itemize than have in the past. 

Investment Real Estate Deductions

INVESTMENT (LANDLORD) REAL ESTATE DEDUCTIONS
Document	How Long to Keep It
Appraisal or valuation used to calculate depreciation	As long as you own the property + 3 years
Receipts for capital expenses, such as an addition or improvements	As long as you own the property + 3 years
Receipts for repairs and other expenses	3 years after the due date of the return showing the deduction
Landlord’s insurance payment receipt (canceled check or bank statement showing check was cashed)	3 years after the due date showing the deduction
Landlord’s insurance policy	Until you receive the next year’s policy
Partnership or LLC agreements for real estate investments	As long as the partnership or LLC exists
Section 1031 (like-kind exchange) sale records for both your old and new properties, including HUD-1 settlement sheet	As long as you own the property + 3 years

Why you need these docs: For the most part, to prove your eligibility to deduct the expense. You’ll also need receipts for capital expenditures to calculate your profit (gain) or loss when you sell the property. Landlord’s insurance and partnership agreements are important references.

Miscellaneous Records

MISCELLANEOUS RECORDS
Document	How Long to Keep It
Wills and property trusts	Until updated
Date-of-death home value record for inherited home, and any rules for heirs’ use of home	As long as you or spouse owns the home + 3 years
Original owners’ purchase documents (sales contract, deed) for home given to you as a gift	As long as you or spouse owns the home + 3 years
Divorce decree with home sale clause	As long as you or spouse owns the home + 3 years
Employment records for live-in help (W-2s, W-4s, pay and benefits statements)	4 years after you make (or owe) payroll tax payments

Why you need these docs: Most are needed to calculate capital gains when you sell. Employment records help prove deductions.

Organizing Your Home Records

Because paper, such as receipts, fades with time and takes up space, consider scanning and storing your documents on a flash drive, an external hard drive, or a cloud-based remote server. Even better, save your documents to at least two of these places.

Or, you can consider an app such as Smart Receipts, which is available via Google Play and Mac App Store. Smart Receipts lets you track your finances, including receipts, for yourself or your employer. You can choose from default data types including dates, price, tax, receipt categories, comments, and payment methods.

Digital copies are OK with the IRS as long as they’re identical to the originals and contain all the accurate information that was in the original receipts. You must be able to produce a hard copy if the IRS asks for one.

Tip: Tax season and year’s end are good times to purge files and toss what you no longer need; that’s often when the spirit of organization moves us.

When you do finally toss out your home-related paperwork, use a shredder. Throwing away intact documents with personal financial information could put you at risk for identity theft.

This article provides general information about tax laws and consequences, but isn’t intended to be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.

Bob Walsmith Jr. is a native to Southern California and a Realtor® with Berkshire Hathaway HomeServices California Properties in Santa Barbara. During his work with the Santa Barbara Association of Realtors, Bob has served on the CORE Committee, Education Committee, been Chair of the Budget & Finance Committee, and the Multiple Listing Service Committee. He also is on the Board of Directors of the Alpha Resource Center of Santa Barbara. Bob lives in Goleta with his beautiful wife Julie. When not working, Bob enjoys playing golf, fine wine, fine dining, and walking our beautiful coastline. Bob can be reached at 805.720.5362 and/or bob@bobwalsmithjr.com