Are you assisting with record keeping for a relative? Are you thinking about selling a residence? Whether soon or in the future, now is a good time to consider your recordkeeping needs.

 

 

Basic rules for taxation: Gains realized upon sale of principal residence are generally taxable but only after subtracting $250,000 for individual taxpayers or $500,000 for joint filing. This exclusion is generally available to those that have owned property for at least five years and have lived there as a principal residence for at least 2 years as of date of sale. There are exceptions to the general rule. For homes other than your principal residence the exclusion does not apply. The exclusion sale of principal residence can only be used if the exclusion had not been claimed in last two years. There may be planning considerations to be discussed with your tax advisor

​Importance of record keeping:  Record keeping starts on the date of acquisition for principal residences or second properties. Be sure to retain settlement documents for the purchase as well as receipts and documentation for any improvements even if you expect your gain to be covered by the home-sale exclusion. You may need to prove the amount of your basis should IRS inquire. There's no telling how much the home will be worth at sale, and the home-sale exclusion may not be available when future sales take place.

 

It is helpful to keep in mind that the exclusion for sale or principal residence is  valuable but subject to requirements at time of sale. 

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Sellers may belatedly become aware of the need to track cost basis of residence as settlement date approaches. This post is designed to provide a warning.