Keep These Receipts

Clients ask me all the time: what receipts do I need to keep? Why do I need to keep them and where should I keep them? Here is a guideline.

Home Receipts:  I subscribe to an email newsletter from Laura Leiden, Realtor with Keller Williams.  Her most recent newsletter explains why every homeowner should hold onto repair and improvement receipts. Here is a copy of the newsletter.

Overlooked Recordkeeping  
Homeowners are familiar that they can deduct the interest and property taxes from their income tax returns. They also understand that there is a substantial capital gains exclusion for qualified sales of up to $250,000 if single and $500,000 for married filing jointly. However, ongoing recordkeeping tends to be overlooked.


New homeowners should get in the habit of keeping all receipts and paperwork for any improvements or repairs to the home. Existing homeowners need to be reminded as well, in case they have become lax in doing so.

These expenditures won't necessarily benefit in the annual tax filing but may become valuable when it is time to sell the home because it raises the basis or cost of the home.
For instance, let's say a single person buys a $350,000 home that appreciates at 6% a year. Twelve years from now, the home will be worth $700,000. $250,000 of the gain will be exempt with no taxes due but the other $100,000 will be taxed at long-term capital gains rate. At 15%, that would be $15,000 in taxes due.

Assume during the time the home was owned that a variety of improvements totaling $100,000 had been made. The adjusted basis in the home would be $450,000 and the gain would only be $250,000. No capital gains tax would be due.

Some repairs may not qualify as improvements but if the homeowner has receipts for all the money spent on the home, the tax preparer can decide at the time of sale. Small dollar items can really add up to substantial amounts over many years of homeownership.

The important thing is to establish a habit of putting receipts for home expenditures in an envelope, so you'll have it when you are ready to sell.

This article recommends keeping the receipts in an envelope. An envelope is fine if you have a very small amount of receipts. I recommend a file jacket: An enclosed file so receipts do not fall out.
 
Depending on how many different types of improvements were made will determine how many file jackets or envelopes to use. For example: Bathrooms, Kitchen, Garage, etc. Another storage idea is a binder with sheet protectors to sort home receipts by project. However, if you want/need super easy one file jacket, drawer or envelope will do the job. The important thing is to keep the receipts.

You do not need to keep service repair receipts on appliances for taxes but you do want to keep them for the warranty period.

Tax Receipts: Note there are huge changes to the tax code and it may not benefit you to keep some of these. Check with your own Tax Advisor for what to keep and how long. Keep in a folder labeled Taxes and the corresponding year.

• Property Tax
• Ad Valorem
• IRA annual fees
• Investment fees
• Medical (if you are able to deduct)
• Donations cash: Keep the credit card statement or cancelled check as proof
• Donations non-cash: Keep the receipt from the non-profit

Electronics, Appliances, Furniture and other Big Ticket Item Receipts:

• Keep for duration of ownership
• Jewelry receipts, if valuable, keep in an Assets or Jewelry file. (Make sure you have enough Homeowners Insurance to cover jewelry. Most Insurance Policies only offer a minimal amount of jewelry coverage. You may need to purchase a Rider)
• Art same as jewelry
• Furniture / Furnishings can have its own folder

If you want super simple have 1 folder titled Big Ticket Items or whatever you would think of to find these receipts but I would recommend 5 folders for this category: Electronics, Large Appliances, Small Appliances, Furniture and Big Ticket Items. 

Inventory these items. If your house burns down you will need to claim and prove that you owned these items and provide a valuation to your Insurance Company.

One of my friends and ex-colleagues, Julia Marlowe, has her own Inventory Business: Athens Home Inventories I highly recommend Julia if you want to hire someone to do this for you.

Auto Repair Receipts:

Keep these for proof of maintenance.  Some Auto warranty programs require it. It’s also good to have a record of all repairs and service.

Clothing & General Shopping Receipts:

• Clothing receipts only if you think you might return the item and only for as long as the return policy dictates
• General shopping same as clothing

I hope this article is insightful and helpful. If you find it helpful please share it. Anyone can sign up to receive my e-newsletter by clicking this link or visiting my website and scrolling down to the sign up link.
 
Adele Gross
Chief Executive Organizer
Simple Solution Organizing LLC