Homeowner’s Advice? Save Your Receipts.

Keeping Tabs for the Future.

What's the best advice I can give a new homeowner? From the day you move into your new home, set up a system where you can track all of the repairs and improvements that you do to your home. That means not only keeping a file of all receipts, but also a spreadsheet that timelines when the work was done, who did it, and how much the repair or improvement costs. Starting that discipline the day you move in and staying on top of it will save you hours of agony years down the road when you sell your house. There are two main reasons my its imperative that you do this:

#1. Disclosure Obligations.

When you sell your home, you're obligated to disclose any work that you've done on the house — including repairs, maintenance, and any capital improvements. But you know this already, because you had to read through all of those disclosures from the seller when you purchased your house.

Documenting these tasks in real time not only makes your disclosures monumentally easier to complete, it also gives you a huge credibility boost as a seller to prospective buyers. Imagine how much better the disclosure packet looks with a specific timeline of these tasks, with receipts to back them up — as opposed to the normal half-baked disclosures that you've probably seen. I know firsthand that buyers feel much more comfortable purchasing a home when the disclosures are forthright and very detailed.

Keeping a log is simple, and you can use tools like Evernote or even a spreadsheet in Excel to keep a detailed timeline of your home improvements.

#2. Capital Gains Tax.

The other big reason that you want to keep great maintenance records of your home is for your taxes. One of the great gifts of home ownership is the partial free-ride that you get from the government on the profit that you made from the sale. The first $250,000 of profit is tax-exempt for each person ($500,000 for a married couple). After that amount is exceeded, you start to pay a hefty capital gains tax. Your “profit” is loosely defined as what you sold the house for minus the cost basis of the house. The cost basis is the amount that you paid for the house, plus repairs and capital improvement, and the cost of the sale.

Previous generations of homeowners often didn't have to care about capital gains tax, since netting a half million dollar profit on a home was reserved for the top 1% of homes. In my parent's generation, a home was considered to be shelter first and not really an investment. But home prices have roughly doubled in the 12 years since the Recession hit, and that means if you purchased a home even 8 years ago, you'll probably have a capital gains liability if you were to sell your home today since you will likely have exceeded the $250K/$500K exemption. The longer you've owned your home, the bigger that liability is.

It's for this very reason that many long time homeowners are choosing not to sell their houses, but rather keep them “in the family” to be passed down to future generations, since the gain is effectively wiped out when the deed changes hands to the trustee. But not everyone has the luxury of keeping their home forever, and for that large percentage of the population it's imperative that you keep good records of the maintenance of your home — because just like when you are filing your regular income tax, fewer things are more frustrating than fishing in a hundred hiding places for receipts that you'll need.

Trust me, you'll thank me for this tip later.

(Editor's Note: You should always consult a CPA or other tax professional with any specific questions pertaining to your taxes. Realtors are not qualified to dispense tax or legal advice. If you get nothing else out of this article, let that be it.)