Paperwork can be overwhelming, especially if you think you must keep every receipt related to home maintenance. If you are drowning in paper, you’re going to like this article. People worry that they’ll have to pay extra taxes on their home when they sell it unless they can produce receipts to prove their updates. Let’s address papers to keep for selling your home head on.
Event alert: I’m sharing this advice to support the organizing and staging that people undertake when downsizing. Will I see you online at The ABC’s of Senior Housing, with Staging Advice this Saturday? Find out more and register for free here.
If your receipts from decades back are in a pile…under a chair…where the dog sleeps, those receipts are probably never going to valuable.
Information is only useful if you can find it when you need it.
Back in 1997, there was a major law change that still benefits homeowners. If you owned a home before 1997, you might still be afraid of how the laws used to work. Since then, when you sell your home, you are allowed $250,000 (single) or $500,000 (married) capital gains on your home that won’t be taxed. The result of this law (which you can read on just one page here) spurred growth in the home market AND made a lot of people very happy about not having to keep so many receipts.
What does this mean to you?
Papers to Keep for Selling Your Home
Let’s say you bought your home in 2003 for $540K when you were single, and lived there for 20 years, and took good care of it, fixing things that needed to be fixed, and replacing things when they broke. If you sell your home now, still single, you can sell it for up to $789K before you would even have to think about capital gains taxes on the sale.
But wait, you say, I replaced the faucets, painted inside and outside, fixed the windows when they broke, replaced the carpet last year, removed a tree that was leaning, and had the heater serviced every year. And I had the piano tuned. Don’t I need to keep receipts for all that?
Nope. Those are all home maintenance items. The piano tuning was always on your dime. The IRS doesn’t care about your piano unless you are a professional musician and it’s part of your business. Even if you are lucky enough to sell your home for more than $790K, being able to produce receipts for those things won’t likely save you on taxes.
**This is where I remind you that I am neither an accountant nor an attorney. I am a professional organizer who helps people eliminate paper piles and find peace in their lives. Please seeking your own professional advice, read up on some really good info available from the IRS to help you organize your papers that I’m linking to right here.
Let’s change things up a bit on your little slice of heaven. You still bought your home in 2003 for $540K when you were single, but while you were living there, you hired a contractor to convert your garage into a media room, you added a main suite with a high-end bathtub, added a gorgeous deck, and put in a lawn sprinkler system. You sold your abode for $789K. Do you need to produce receipts? Still no. All of your paper organizing was keeping your office clean, but doesn’t lower your taxes, because you are still under the $250K of tax-free gains that the government allows nearly everyone.
One more time, let’s say now you bought the home for $540K, then sell that same home for $989K with all of the improvements above. This is $200K over the tax-free limit the IRS gives you. Now having those receipts is going to come in handy, as you can adjust your basis (basis means the starting value of the home) by the amount you invested with your improvements. If your additions and allowable improvements cost $200K, it’s all tax-free gains when you sell your home, because you’ll still be under that $250K capital gains threshold.
Remember that $250K of tax-free capital gains turns into $500K of tax-free capital gains if you are married
Keeping every $10 receipt from Home Depot is not going to save you on taxes. You do not need to keep receipts for regular repairs to your home.
Call the plumber out to fix your faucet? No.
Replace the carpet your puppy destroyed? No.
Update the vanity in your bathroom? No.
Get new curtains? No.
Replace the mailbox? No.
Install a kitchen garbage disposal? Probably not.
Replace your refrigerator with one that has a fancy ice-maker and water filter? Sorry, no.
Buy a new toaster. Definitely no.
Info from IRS tax publication 523 (2022), Selling Your Home
The excerpt below is verbatim from IRS Pub 523, which helpfully describes which projects lower your costs basis, and which don’t.
Here’s the Takeaway on What Papers to Keep for Selling Your Home
You should definitely keep some records.
Keep receipts for tax-assessable and/or substantial improvements to your home. If you add square footage or your taxes go up because of material improvements, keep records and receipts.
If you aren’t sure, keep the paperwork, but file it safely with your home records so you can find it later.
You don’t have to love to file, but you can have less to file if you learn what paper is really important in the short term and the long term. Lucky for you, I have lots of articles on paper management, simple filing categories, and organizing paper for taxes. I LOVE and use the FreedomFiler for creating a maintenance-free home filing system.
If you need even more help, you can check out my online class on paper management using SORT and Succeed.
Still have questions? Attend online this Saturday and get them answered at The ABC’s of Senior Housing, with Staging Advice. Find out more and register for free here.