Save on income taxes with well-kept property records

Save on income taxes with well-kept property records The impact of good record keeping can be felt by property owners all the way to the bank. Some records provide a tax benefit by substantiating deductions while others add to the basis of the property. By adding to the basis, taxpayers may escape capital gains when the property is sold.

Property taxes and qualified residence interest are deductible on the tax return for the year paid. So it is important that taxpayers should keep statements and receipts for these amounts with a copy of their income tax return.

Items relating to the basis of real estate property should placed in a permanent file. The basis includes the original cost of the property plus improvements. However, improvements do not include repairs. A repair puts something back in good condition after damage or decay, mend, or fixes. To improve means to increase or add to the value of, or to enhance the condition of the property.

To determine if an item is a repair or an improvement, taxpayers can ask themselves is it increases the value of the home. A room addition does; so does landscaping or installing wall-to-wall carpeting. A new roof makes the residence more valuable; repairing or patching a leaky roof does not.

Without a tax benefit, taxpayers have no need to keep receipts for maintenance and repairs.

Proof of the original cost of the home plus the cost of all improvements should be kept in the permanent file

Also, settlement statements for the purchase or sale of the residence, invoices for improvements such as room additions, a swimming pool, or a roof replacement, should be kept in the file. In addition, taxpayers should save the original notice of assessments for sewer connections, paved streets, and sidewalks.

The rules are different if the taxpayer rents out his or her home or sublets an apartment or condo to someone else at a fair rental value. In this situation, not only are the tax and interest expenses deductible but so are repair costs. Receipts must be saved for every expense incurred. This includes maintenance costs and minor repairs in the year paid and insurance premiums. When the property is used as a rental, the taxpayer can depreciate the basis of the house, including the cost of improvements.

For answers to your questions about the effects of real estate transactions on your income tax return, call or stop by your nearby H & R Block office.

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