First, as long as you actively own the real estate in question, it is recommended that you keep all records associated with the home. It is useful to keep these records separate from your yearly tax records for easy reference.
If you sold a home before 1998, keep Form 2119 until you’ve sold the replacement home. Form 2119 was used to report the sale of an old home and any purchase of a new one within the replacement period. You would have filed Form 2119 with your tax return the year you sold your old home. Keep a copy of Form 2110 with your tax records for the year of the sale. Keep an additional copy with your records for the basis of your new home.
In terms of other documents, such as your promissory note, security instrument, HUD statements and all other mortgage and refinancing closing documents, experts have varying opinions regarding how long these need to be kept around. The minimum recommended time to hold on to these documents is at least three years after the transactions are completed. However, holding them for up to ten years or even forever is not uncommon. Basically, you never know when you might need these documents. It probably isn’t a bad idea to hang onto your mortgage & refinance documents permanently.
Be sure to keep:
- All records documenting the purchase price and the cost of all permanent improvements – such as remodeling, additions and installations.
- Records of expenses incurred in selling and buying the property, such as legal fees and agent commission.
Both of these types of documentation are used in calculating capital gains. A capital gain is a profit that results from the sale of an asset that amounts to more than the purchase cost. Any improvements made on your house, as well as expenses selling it are added to the original purchase price or cost basis. The difference between sale price and original price (cost basis) is the capital gain. Keeping records of these items can help lower your capital gains tax.
Keep your documents in safe deposit boxes along with other investment-type documents that require safekeeping. Any documents that serve as proof of ownership should be protected.
Remember that the documents associated with a loan can differ by state, so if you’re overwhelmed by documentation and want to try to lighten up, talk to your tax advisor and a Home Loan Expert before heading to the shredder.
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