With tax season upon us, now is a good time to remind ourselves how important it is to keep those boxes of old tax records. Remember, you should keep files for 7-10 years before destroying. However, within those boxes, should be a file called "home improvement" or something similar. Those files should be tallied at the end of the year, with the total amount spent written on the outside of the file and kept, for as long as you own that property. Why?
Because once you've lived in a home for two years and sell it, the government allows each of us, only a $250,000. gain to go tax free. Couples filing jointly get $500,000. However, any improvements that you've made while living there can be deducted from the tax owed. Be diligent about this! Why? Consider this:
Husband and wife purchase a modest home in a nice neighborhood in the 1970's. As their family grows, they add a second story to the home, doubling their square footage. Twenty or more years go by, the kids move on, and they decide to remodel the kitchen. Years later and sadly, the husband passes away. His widow decides it's time to downsize as her home is now worth a "bazillion" dollars. However, only $250,000 is sheltered from Capitol Gains Tax. And, she has long since destroyed the receipts from the home addition and the kitchen remodel. Unfortunately, Uncle Sam will take a huge chunk if she chooses to sell.
The moral of the story is; it's worth keeping a box or two of old "home improvement" receipts!!!