Financial Records – Your Home

If you own a home, you know how much paperwork it can generate, because it takes a UHaul to move it.  But home-related records are important for both tax and insurance purposes.  To get your home-related documents under control, begin by preparing a file on your home’s purchase.  Include sales agreements, closing documents, and copies of mortgages and appraisals.

Another file should contain an inventory of your belongings.  Be sure to include brands, model and serial numbers, purchase prices and replacement costs of your big-ticket items.  Photographs or video recordings of your possessions are valuable tools for insurance purposes.  It’s important to keep a copy of your inventory list, photos and video in your safe deposit box in case your home is damaged or burglarized.

Your third home file is for all documents relating to home improvements.  According to IRS rules, work that you do to your home that increases its value is a capital improvement and will raise your home’s cost basis.  It works pretty much in the same way as the mutual fund example I gave you earlier. But instead of reinvesting dividends, you’re making investments in the value of your home.

Let’s say you bought a home for $100,000 and spent $50,000 updating the kitchen and bathrooms and putting on a new roof.  Your cost basis would then be $150,000 – the $100,000 purchase price plus the costs of renovation.  If you later sell the home for $200,000, your gain would be $50,000 – that is the $200,000 sales price minus your adjusted cost basis of $150,000.

Now some people might tell you that keeping these records is a waste of time these days because gains of up to $250,000, or double that amount if you are married, are no longer subject to tax.  But there are two reasons not to listen.  First, if you own your home for a long time, especially in a period of rising real estate values, it’s entirely possible that your gain could surpass this threshold.  And second, Congress could change the rules at any time.  Keep your records and receipts for at least three years after you sell the property and you’ll be prepared for either scenario.

So now that I have covered some of the records you need to keep in your home filing system, I would like to talk about what belongs in your safe deposit box.  As I said earlier, you’ll need a safe deposit box for anything that is difficult or expensive to replace.  Let’s start with personal records.  This includes things like birth and marriage certificates, as well as adoption, citizenship, and divorce papers.  These documents can be replaced but it can take time.  When you need them, you’ll be glad to know exactly where they are located.

Your safe deposit box should also contain proof of ownership for major possessions.  This would include things like the deed for your house, titles for your cars, as well as any stock or bond certificates.  Again, these can be replaced but not without a lot of time and effort on your part.

When it comes to a will, many people mistakenly assume that a safe deposit box is the only place you need to keep a copy.  Your signed, original will should be stored in your safe deposit box.  But access to your box can be delayed after your death.  That’s why it is a good idea to keep a copy at home in a clearly marked file and leave an additional copy at your attorney’s office.  Just be sure to destroy all old originals and copies if you make any changes; this will eliminate any confusion among your loved ones after your death.