Location: Westland, Michigan, United States

Graduate of Walsh Institute Of Accountancy (Now Walsh College) Michigan in 1959. Retired in 1987, but still active in the profession **World War II Veteran (Pacific) **PHONE 734-261-1979 **E-MAIL **(Domain Name CPASENSE Registered) **Mentioned in the Journal of Accountancy, SmartPros, Tax Prof Blog, CPA2BIZ, CPA Journal, AccountingWEB, CPATrendlines & More **Search Accounting Blogs: (Includes cpasense)**TOPICS - FINANCE - FEDERAL & MICHIGAN TAXES ** Making Sense Of Your Finance & Taxes

Thursday, March 27, 2008

Homeowner Records: What To Keep and How Long

Keeping full and accurate homeowner records is vital for determining not only your home deductions but also the basis or adjusted basis of your home. These records include your purchase contract and settlement papers if you bought the property or other objective evidence if you acquired it by gift, inheritance, or similar means.

You should also keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis. Here's some examples:

**Putting an addition on your home
**Replacing an entire roof
**Paving your driveway
**Installing central air conditioning
**Rewiring your home
**Assessments for local improvements
**Amounts spent to restore damaged property

In addition, you should keep track of any decreases to the basis. Here's some examples:

**Insurance or other reimbursement for casualty losses
**Deductible casualty loss not covered by insurance
**Payment received for easement or right-of-way granted
**Value of subsidy for energy conservation measure excluded from income
**Depreciation deduction if home is used for business or rental purposes

How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. And you must keep these records for as long as they are important for the federal tax law.

Paul Dion CPA


Anonymous Anonymous said...

On an unrelated note, I wanted to ask a question or a referral.
I hoped you can help me with the following. I have been debating about what to do with my house, but the more I weigh all the options, the more I’m convinced that the only one I have left is short selling my current home, and to start all over again, from scratch, renting a home.

In a nutshell:

Home in Gilbert, AZ (Primary residence, 2-and-a-half years living in it)
Purchased in 2005 for $530,000
I have just been told by my agent that after looking at comps, I could list it for $430,000 to attempt to sell it (Currently 18.9% decline vs. purchase price, not yet considering any low-ball offers)
If everything goes according to analysts’ expectations (what I read in the Journal, opinions from Credit Suisse, etc), the market would continue to slide in the months to come. (Additional 25% to 35%)
First Mortgage is for $360,000, 5/1 ARM at 5.25% but resetting in 2010.
Second Mortgage is for $150,000 fixed rate 7.45%. This second mortgage was originally for $86,000, but I refinanced it and increased it to the $150k loan I describe in order to pay-off credit card debt, as well as to make improvements to the house. Total Monthly payment $3,000.
Theorizing the market starts to come back in 2009 at sustained rates of 5% per annum (unlikely in my opinion), the house value would start at $410,000 and would reach a value of $550k (Enough to sell and break-even with both loans, including expenses) in 2014 (in 6 years) But again, looking at the assumption (little additional house value declines, followed by a quite strong come-back) it seems rather implausible in mi opinion, so I’d really be looking at additional years just to break even
So if we end up selling at $400k, minus selling expenses & closing costs, it would leave approximately $360k (Barely enough to cover the first mortgage)
While our gross household income is reasonably strong now, job stability is a concern (IT Industry)
All of the above has led me to believe I have no further options than to sell the house, and again, start over.
The questions I have for you are:
Provided there is a new law that Congress has passed (“Mortgage Forgiveness Debt Relief Act of 2007’’), I am uncertain if I would be liable for taxes if I pursue this short sale. Can you tell me what your thoughts are on this? I consulted with Tax Attorneys and CPA, but their views are that “It is too early to know how this law will be interpreted” , the big green-block tax advisors won’t even touch the subject, and a third party comments there is no Tax Code yet (I am not even sure what the meanining of this is)
What if the Second Lien Holder decides to pursue a Credit Deficiency judgment against me? What options would I have then?
I am certain I would qualify for insolvency, as this house is my biggest asset, yet all the liabilities exceed the assets.
Thank you very much for your help



Negative cash-flow.

2:23 AM  

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