4. Home-related documents
Owning a home is a big deal for everyone and is also the single largest asset for many of us. It is not easy to keep a home, and it is also not easy to sell one. When you sell a house, you should be careful because it can generate a pretty big tax bill.
If some conditions are met, the tax law allows gains up to $250.000 for the sale of a principal residence. In the case of joint filers, this can go up to $500.000. If you don’t meet the conditions, you will end up with a taxable gain. This is also the case if the gain goes beyond the limit.
There is one thing that you can do in order to maximize the gain: you need to maximize the basis of your home. The basis represents the amount of money you paid for the home and can be increased by capital improvements. This means that if you put up a new roof, build a swimming pool, or buy some new appliances, the price you will get when selling will be higher.
So, if you decide to do home improvements, keep any documents related to that. By doing this, you can add the following to your base cost: survey fees, transfer or stamp taxes, charges for installing utility services, or title insurance.
Keep these papers as long as you own the home and for three years after selling it. The IRS might ask questions about your position, and you want to be prepared for that.
5 things to keep for Taxes