How Long Should You Keep Your Records After Selling the House?

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As society becomes more paperless, it’s hard to think about holding on to all the documentation that goes along with your home—especially once you sell your house. Imagine: some real estate transactions call for roughly 180 sheets of paper, generating a sizable pile, plus hand cramps from all that signing.

But how long should you keep records associated with a loan and your property once you sell? Three years? Ten years? Forever? Before you start your “keep” and “toss” piles, here’s an overview of which documents are essential and how to be smart about your home sale record storage.

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Are electronic records an option? The answer is yes, but…

“When I have buyers or sellers, I do keep electronic records, and I send all documents to my clients electronically, but I also encourage people to keep paper copies,” said Randi Beard, a top-selling real estate agent with 10 years of experience in the Asheville, North Carolina, area.

“Even though a lot of our storage is cloud-based, I just find it’s really helpful for them because a lot of times, people don’t even remember where they catalog it in their cloud storage,” she added. “Even Millennials, they still like having that paper copy as well.”

At a high level, make sure you’ve got proof of any mortgage payoffs

Aside from what you’ll need for your taxes (we’ll get to those shortly), you don’t have to hold on to every record associated with a property indefinitely once you no longer own it.

However, you’ll definitely want to keep proof of any loans, mortgages (also called deeds of trust), and deeds in your name that have been paid off and recorded among the land records in the state or county where the property was sold.

A “release” or “certificate of satisfaction,” indicating that the paid mortgage was recorded properly, will suffice. (Keeping a payoff statement or lien release also guards against any errors on your credit report or on the lender’s end.)

A binder used to keep records.
Source: (Pxhere)

Which other home sale documents should you hang onto?

When you’re listing your house, it helps to think like a buyer in terms of paperwork. Beard jokes that she’s become known in the Asheville area for making her buyers a binder—“I think I’m one of the only agents who does this”—complete with tabbed sections for the appraisal, home inspection, and so forth.

“It’s such an easy reference when it’s all in one place,” she said. “If I sell somebody a house and then three years later, they call me to list, I know we have those records. But it’s surprising how many people will call me to list the house, and I’ll be like, ‘Do you have all the information from when you bought it?’ And they say, ‘No.’”

If you were to create a home sale binder, it’d be smart to include your:

Settlement (closing) statement
As a seller, your most vital document is the closing statement, also called a settlement statement. (Some agents also refer to this as an “ALTA,” because the American Land Title Association developed the form that’s widely used.) This statement, often used alongside the Closing Disclosure, summarizes the finances of the transaction, itemizes fees and credits, and shows a seller’s net profits, which you might need for taxes.

Receipts for capital improvements
Although you won’t need your preliminary title report or homeowners insurance records once you sell, you’ll want to keep receipts for capital improvements, such as a kitchen or bath remodel before you sold the home. This isn’t regular maintenance or repair but improvements that boosted the home’s value. Capital improvements mitigate the capital gains taxes you’ll owe on the home sale, which is easier to calculate if you have records of all such improvements over your ownership of the property.

Renovation permits
Beard also recommends keeping copies of records where the new homeowner might encounter a legal problem, for instance, any permits you pulled for renovations before you sold. If someone does a certain amount of renovations without permits, the next buyer could be held liable retroactively for non-permitted work found during a later inspection.

“That’s a big issue with us right now; I’m sure it probably is nationwide,” she said. “It’s imperative to keep all that information.”

Home warranties
Likewise, hang on to any warranties for pest control, building improvements, roofing work, and appliances (built-in washer/dryer, water heater, refrigerator, HVAC system), as well as service contracts, for the life of the warranty, even if you sell the home before the warranty expires.

Although many documents are relatively available online, Beard also suggests keeping copies of any records unique to your former home, again to field any immediate questions or potential issues from the new owners.

“I live in a 1949 house—there’s a fireproof safe cemented to the floor in the garage,” she said. If she were to sell the house, she’d pass on not only records of replacing the roof and the windows but information about the safe as well.

What you’ll need specifically for taxes and calculating capital gains

A certified public accountant is one professional you’ll want in your corner after selling your home to answer detailed questions about your particular home sale. Not every homeowner has to pay federal taxes after selling a home. Single tax filers can exclude up to $250,000 of profit, and married filers can exclude up to $500,000, according to the Internal Revenue Service. (You must qualify for this exclusion by proving that you owned and used your home for at least two out of the five years prior to its sale.)

In general, to calculate your tax liability, you’ll need proof of your original purchase price and the sales price (available on the closing statement). Calculating any capital improvements you made to your home throughout the years will lower the amount of capital gains tax you’ll pay on the sale.

For these calculations, hold on to these documents:

  • the closing statement
  • documentation that proves your home was your primary residence for at least two of the prior five years (such as utility bills, voter registration, prior tax returns)
  • a 1099-S form from the IRS (especially if you don’t qualify for capital gains tax exclusions)
  • a 1098 form, which shows your paid mortgage interest, plus any real estate taxes paid through escrow
  • records and receipts that provide evidence of capital improvements (including any invoices to a contractor for remodeling)
  • receipts for any moving expenses. (This can reduce your home sale profits if you meet certain rules, such as selling the home because of a new job that’s at least 50 miles farther from your old one.)

Financial experts recommend keeping these records for seven years after your home sale, based on the IRS’s time frame for audits. The IRS has three years to audit your return if it suspects any good-faith errors on your part, and six years if it thinks you underreported your income by at least 25%. (Note: You can be audited at any point if the IRS suspects fraud.)

A safe used to keep records.
Source: (katalinks/ Shutterstock)

Best practices for storing your home sale records

With today’s technology, you can scan any pertinent records and receipts into cloud storage, as well as keeping a paper binder if you choose.

“Just start a Dropbox file and dump everything in there,” Beard said. If you don’t have a scanner, take a smartphone photo of the receipt and upload it.

Cloud storage such as Dropbox, IDrive, pCloud, MediaFire, OneDrive, Google Drive, and iCloud backs up automatically and is password-protected, so any computer crash at home won’t affect your records. You also can access cloud storage from anywhere in the world. Just make sure that anyone who needs access to these records has the correct login.

If you also keep a binder of paperwork, label it clearly, and store it in a safe place, such as a fire-safe box or a bank box. Photocopy any register receipts so they’ll last longer. Most register receipts are printed on thermal paper, which is susceptible to UV light and heat, so it fades over time. A photocopy won’t. (You can toss the originals.)

Start your record-keeping right when you first buy your house, and you’ll find that selling it and culling through unnecessary paperwork later becomes much easier.

Beard says she’s so meticulous, her organizational tactics rub off on clients. And even if you don’t plan to sell right away, you’d be wise to keep your records tidy as you go: “I train my folks from the very beginning,” she said, noting, “Just trust me. You are going to thank me years from now when you want to sell.”

Article Image Source: (Jo Panuwat D/ Shutterstock)