Tracking Your Home Improvements
Posted 28 March 2016 3:25 PM by admin
Home improvements let you personalize your living space, update your mechanical systems, and add to the value of your home. They also increase your home's basis, which is an important factor when eventually sold. Be prepared for tax time and home emergencies by keeping track of your home improvements.
When you might need home improvement records
Keeping track of your home improvement receipts and other records is a good idea for several reasons. Receipts may be needed for warranty repairs, or as proof on a home insurance claim after a fire, flood or other damaging event. When you're ready to sell your home, records also document your home improvements for interested buyers and help you calculate your profit or loss at tax time.
Tax rules for selling your home
Current tax rules keep you from paying capital gain taxes on up to $250,000 of your home-sale profits, or up to $500,000 if you're married and filing jointly. However, calculating your profit (or loss) depends on something called your "home basis." When you buy or build a home, its basis is typically the amount you paid for it, including settlement costs.
Home improvements increase your home's basis if they materially add to the value of your home, prolong its life, or adapt it for new uses. An increased basis reflects the money you put into improving the house, making your profit (or loss) more accurate.
Which records to keep
When starting a home record, there are many things to include. Keep copies of your settlement documents, or other documents if your home was a gift or given to you through an inheritance or a divorce. Keep receipts from home improvements, including remodeling projects, new appliances and any other improvements that stay with the home. For insurance purposes, it's also a good idea to keep pictures of your upgrades.
Keep these records the entire time you own your home. You can use a simple file box or scan digital copies to store on a home computer. Digital copies that are backed up to off-site storage (such as a cloud storage system) provide the greatest security in the case of a fire, flood or other damaging event.
Keeping track of your home improvements takes a little effort, but it will be a big help you when it's time to sell or if you ever need to file a home insurance claim.