The disclosure includes the fees you paid to the lender and third parties, as well as whether or not you paid discount points. In certain circumstances, you can deduct discount points from income tax, but you must keep the final disclosure for as long as you use the deduction. While you`re busy throwing papers into the campfire, remember to keep your HUD-1 return. This is a detailed list of all the costs associated with buying your current home and includes tax-deductible items and costs that can be added to your cost bases when you calculate capital gains tax on the sale. It`s important to determine where you can store your key data sets. For example, online or cloud-based datasets can be hacked and hard drives can fail. Keeping paper files in a locked fireproof cabinet or safe helps keep papers safe. Just be sure to remember where you kept the documents and tell any other named parties on your home loan where those documents can be found. It is also important to keep records of improvements such as a kitchen renovation, a new roof or a new terrace. On a rental property, you devalue them with the house, so you can write off the loss in value due to age on your taxes. Whether in investments or personal property, they influence the base.
A $10,000 kitchen renovation increases the base by $10,000, which reduces your capital gains on the sale. Beard also recommends keeping copies of records where the new owner might run into a legal issue, such as permits you obtained for renovations before selling. If someone makes a number of renovations without permission, the next buyer could be held retroactively liable for unauthorized work found during a subsequent inspection. Other documents associated with the loan, such as refinancing agreements, must be kept for at least three years, although some real estate professionals recommend keeping these records for up to 10 years. That`s because you might want to refer to it if your monthly mortgage statements seem inaccurate or if, for example, your monthly interest rate suddenly changes unexpectedly. You can also scan and save your documents digitally. Many companies offer cloud-based storage where you can easily access all your files. After uploading your documents, shred any unnecessary hard copies. However, you will definitely want to keep proof of loans, mortgages (also known as trust deeds), and deeds in your name that have been paid and registered in the land records of the state or county where the property was sold. More importantly, you may need these documents if you ever face foreclosure.
The most important mortgage document you should keep is the deed of ownership of your home. “First, never throw away or remove the deed of ownership of your home, as it`s by far the most important document you should keep,” says Leonard Ang, CEO of iPropertyManagement, an online resource for homeowners, renters, and real estate investors. Let`s say you`ve paid off your mortgage and you`re ready to sell your home. If your mortgage lender has never filed a mortgage satisfaction with the local registrar, your mortgage documents may save you from a dispute during the sale. Tax season is the perfect time to sort through your documents, to “keep” and “shred” the piles. But when it comes to mortgage documents, which ones do you keep and for how long? And which ones can you safely throw away? You should keep the home inspection report for two to three years, as it can provide information on the age and condition of systems and equipment, among other things. For example, the home inspector may have estimated the age of the roof, giving you an idea of when it needs to be replaced. “Any sensitive content should be removed first before being deleted, including your account numbers, social security number, and date of birth, which can be redacted with a pen or writing stamp,” says D`Annucci. Many expenses affect your tax bills, but not your tax base. This includes the amounts you pay for mortgage interest, mortgage insurance and property taxes. If the house is an investment property, repair and maintenance costs are also a factor.
You must keep tax records for at least three years, which is the normal limit on how far the IRS can go back in an audit. If the agency accuses you of under-reporting your income by 25%, it can go back six years. If you want to be on the safe side, keep records at least that long. Similar to your deed, you should keep these documents at least as long as you own the property. Homeowners used to hold “banknote burning parties” where they burned their mortgages to celebrate repayment. It may have been fun, but these documents are still incredibly important, and you`d better archive them in a storage cabinet. You will also need to keep records of your home for as long as you live there. Records that show your purchase price and what you spent on improvements can be helpful when trying to prove the value of your home to potential buyers. Another reason to keep these documents: If you sell your home for a high profit (more than $500,000 for couples filing joint tax returns or $250,000 for individual tax filers), certain expenses can be used to reduce your tax bill.