What home ownership records do you need to keep?

September 28, 2016

One thing you might not be prepared for when you buy a home is how much paperwork and documentation is involved in the process. After you’ve moved into your new home, you might find yourself with a box or two (or more!) of paperwork, not to mention hundreds of digital files, all related to your new purchase. Consider the following as you decide what to keep, and how to organize:

Initial Documents

You should keep a file with copies of the papers that you and the seller signed at closing, including the HUD-1 settlement statement, Truth in Lending statement, deed, purchase agreement, disclosures, and inspection report. Even if you have digital copies, it’s a good practice to keep originals of the HUD-1 statement and deed.

You will probably need the HUD-1 statement for your first year’s taxes after your purchase, but after that time, it’s unlikely you’ll need these documents until you sell the property, so they don’t need to be easily accessible.

Records Accumulated While You Own Your Home

Some expenses incurred while you own your home have tax consequences, so you’ll want to be sure you hold onto related documents. For example, the cost of permanent improvements, such as a remodel, can increase the basis of your home and reduce the amount of tax you owe when you sell the property. (Basis is the value of your property for tax purposes.) Other expenses that can increase your basis include the cost of major repairs (such as if you have to rebuild after a disaster). Your basis can be reduced by circumstances such as insurance payments and payments received for an easement.

Keep any records that might affect your basis, including receipts, invoices, and check stubs. Again, you probably won’t need these records until you dispose of the property, so they don’t need to be readily accessible, but they do need to be kept somewhere safe.

Where and How to Store Documents

In general, it’s a good idea to keep your house-related papers all together, perhaps with other investment-related documents. Since you likely won’t need regular access to them, you can keep them in a safe-deposit box at a bank, or a fire-proof safe at home. Out of sight shouldn’t necessarily mean out of mind, however. Make sure you know where the documents are, and keep them organized in a way that makes sense to you so you can find what you need when you need it (chronological order may be the easiest and most logical method).

How Long to Keep Documents

Assuming you file truthful tax returns each year, the IRS recommends that you keep tax records for three to seven years. However, records related to real property should be kept for three to seven years after you’ve disposed of the property. That means you should keep the records establishing the value, purchase price, amortization, and depreciation of your new property for at least seven years after you’ve sold the property. (If you never sell your home, it does mean you will hold onto the paperwork forever.)

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