• Home
    • Uncategorized
    • How to Keep Accurate Records of Home Repairs and Investments for Tax Time

    How to Keep Accurate Records of Home Repairs and Investments for Tax Time

    Ah, a brand new tax year. Nothing like starting off right and keeping your finances in order before you have to worry about filing.

    Have you recently made some repairs to your home and are wondering how to get some money back during tax season? Have you recently invested in property and want to ensure that all your bases are covered with the taxman?

    No one likes an audit, so we’re here to help you keep that reaper from your door. Let’s go through the records that you should keep to ensure your tax record has a well-marked paper trail for any IRS agent to follow, and what changes to your home you can claim in credits to get some money back on your investment. Here’s how to keep accurate records of home repairs and investments for tax time

    What to Keep

    As a matter of general principle, you should hold on to records that fulfill one or more of the following purposes: identify sources of income, track expenses, determine the value of property, and support claims made on your previous tax returns (as well as the tax returns themselves, but that’s generally common sense that you should on to those).

    With that in mind, let’s look quickly at how you should keep these records stored and for how long. You can opt for the classic file-folders-in-a-cabinet approach if you can spare the space, or you can play smart and store digital copies of your records. Some tax companies will advise you to use common sense in choosing which records to keep and which to dispose of, but with digital storage, you can play things as safe as you like. The IRS accepts digital photos acceptable records, so as long as you have access to a scanner or any device with a camera, you can easily store all of your receipts, files, and what have you digitally in the cloud. Note: because technology can malfunction, it can’t hurt to save your most important records (i.e. past tax returns, bank statements, social security card) in a fireproof lockbox. But your receipts should be fine to leave online-only.

    In terms of how long you keep records stored, it’s up to you to judge based on your own situation, but let’s review IRS windows for audits and reviews. The time frame in which most IRS audits can be filed passes after 3 years, but if the IRS suspects you underreported your income by 25 percent or more, the window increases to 6 years. The IRS recommends that you hold on to tax records and any documents used to support credit claims for 7 years, and some accountants even advise as long as 10 years. Make a choice you can live with based on your own situation.

    Finally, let’s look at how to organize your returns and supporting documents. All of the possible documents can be broken into the following categories: tax returns, bank statements and property value documents (like mortgage payments), receipts (for repairs and improvements you make to your property), and renter’s agreements and payment reports. Not all of these documents may apply to your situation, but here are two ways to organize them:

    By Type: tax returns/ bank statements & property value docs/ receipts/ rental-related documents

    By Year: ts, bs&pvd,r 2018/rental docs 2018/ ts, bs&pvd,r 2017/ rental docs 2017/ etc.

    Note that the documents in the year-based schematic are separated between your personal property and any other properties you may own as a landlord. That is to make each file a little easier to sift through for specific documents, and because renting property to others invites extra taxes with their own special forms.

    What to Claim (and When)

    Figuring out what you can claim for credit can be easily done by determining if the change you made to your home was a repair or an improvement.

    A repair is any change to your house or property that does not increase the overall value of your property. Replacing a broken window pane, fixing a leaky faucet, and painting a room are all examples of repairs. They may mend your current appliances, upgrade your cabinetry, or freshen up your living space, but they are not upgrades on the appliances themselves and do not increase the value of your property on their own. Unfortunately, because of that, repairs costs cannot be claimed for credits on your tax returns.

    An improvement is any change made to your home that increases the overall property value or extends its life. Additions, lot expansions, and replacing appliances, are all examples of improvements that you should save your receipts for. However, because these improvements will add value to your property over time instead of all at once, you can’t claim the credits all at once either. You have to claim them gradually on your returns over the following years as capital expenses.

    Trackback from your site.