7 Home Sale Documents To Stash Away for Tax Season

DISCLAIMER: This article is meant for educational purposes only and is not intended to be construed as financial, tax, or legal advice. HomeLight always encourages you to reach out to an advisor regarding your own situation.

Admit it—tax season always creeps up on you. It’s a busy time! You’re juggling a lot and selling your home doesn’t make taxes any easier.

As you’re gathering documents and checking off to-dos, save yourself some headaches and keep what is needed for taxes when selling a home in one place.

One of the top real estate agents in Missouri and an H&R Block lead tax analyst told us exactly what homeowners need to have ready once tax season rolls around to save you time and stress if you need them when you file—or (dun dun dun) if you get audited.

How to sell your home completely tax-free

Did you know that not every homeowner has to pay federal taxes when they sell their home? In fact, if you’re a single tax filer and you sell your primary home, you can exclude up to $250,000 of your home sale profit on your home sale. And if you’re married, you can exclude up to $500,000.

Nathan Rigney, the lead tax analyst at H&R Block, says that to lower your tax liability, you need to keep track of your expenses and calculate your basis.

“Your basis is generally the original amount that you paid for your home, increased by improvements that you made to your home throughout the years,” Rigney says. “So if you put in new hardwood floors, remodeled your kitchen, or put a new roof on, you can add those improvement costs to your basis, which lowers the amount of gain when you sell the property.”

The lower the gain, the less likely you’ll have to pay capital gains tax.

In some situations, like if the house isn’t your primary residence, the capital gains exclusion threshold might not apply. So before you sell your home, make sure you understand all of the capital gains tax exclusion qualifications.

“I tell everybody to consult with their tax financial advisors because it depends on your estate planning needs, your age, where you’re at income wise and investment wise. It’s not really cut and dry,” says Chris Carter, who ranks in the top 2% of 2,633 agents in Jackson County, Missouri.

If you have to pay capital gains tax on your home sale, you’ll need to report the sale to the IRS and provide documentation of the costs incurred in your home sale in order to lower the taxes you pay.

And even if you’re excluded from paying the capital gains tax, it’s important to keep the documents associated with your home sale in a safe place. You know, just in case.

Here are the home sale documents you should hang onto for tax time

1. 1099S form to report your capital gains

If you don’t qualify for capital gains tax exclusions, your home sale will be reported to the IRS through a 1099S form. According to Rigney, you’ll receive this form in the mail and it’s important to have when you file your taxes.

“That’s how the IRS knows that you sold your home,” says Rigney.

But if you don’t have to pay capital gains tax on your home sale, you may not receive a 1099S form since you aren’t required to report your home sale on your taxes.

If you aren’t sure whether or not you should expect a 1099S form, talk to your closing attorney or real estate agent.

2. 1098 form as a record of your mortgage interest payments

The other form that you’ll get in the mail is a 1098 form, which has your mortgage interest amount that you’ve paid throughout the year.

This form can be your best friend if it turns out you don’t qualify for the full exclusion because the interest you’ve paid on the home can be added to your cost basis and lower your tax burden.

“Real estate taxes, in most cases, are also reported on there if you paid them through escrow,” says Rigney.

3. Closing Statement, which is a receipt for your home sale

The settlement statement for your home sale, also known as the HUD-1 or the closing disclosure statement, lists the various costs that were incurred throughout the home sale.

“Your HUD-1 closing disclosure statement is going to have some of the information that you might need, like the application of property taxes and the amount that you paid the broker,” Rigney says.

It acts as a receipt of your home sale so hang onto it as a record of all the costs you paid throughout the process.

Regardless of whether you are reporting your home sale on your taxes, keep this document in a safe place.

4. Records to determine your cost basis

Keep any records and receipts that prove your cost basis. Records like home renovation receipts and invoices are the evidence you need to help reduce your home sale tax liability.

“You just need to be very careful when you’re adding to your basis. When you’re including the cost of your improvements, you need to have your invoices,” Rigney says. “If you hire a contractor, make sure you have invoices that show that amount.”

DIY home improvement projects should be recorded, too, and kept safe with your other home sale tax documents.

“If you did it yourself, you can’t include the value of your services, but you can include all the materials that went into it and any permits that you had to pay for,” says Rigney.

5. Documents showing you had a work-related move

If you’re selling your home for a new job and you lived in it for more than two years, you’ll qualify for the full capital gains tax exemption.

But if it’s been less than two years, you may still qualify for a partial gain exclusion if you had a work-related move. There are some rules around that: If you moved for a new job and the new job is at least 50 miles farther from your new house (or, if you didn’t have a previous employer, at least 50 miles from your previous home) and your employment situation changed while you still owned and were living in the house, you could qualify for a reduced exclusion.

In that case, you’ll need proof that you meet these qualifications.

“If you claimed a reduced exclusion because you got a new job in a different city and then moved because of it, you’re going to want some evidence of that,” says Rigney.

What about the stack of crumpled receipts you saved from each and every “last” trip to the drugstore for moving tape — will these be valuable to the IRS if you moved for work?

Probably not (although it’s always good to hold onto them). You used to be able to deduct moving expenses related to work by simply meeting the IRS qualifications for a work-related move (which we explained above), but the 2017 tax reforms whittled down the deduction to only include active military relocations, according to the IRS Armed Forces’ Tax Guide.

6. Documentation that proves your home was your primary residence

One of the biggest qualifications for the capital gains tax exclusion is that you’ve lived in the house as your primary residence for at least 2 of the past 5 years.

So, hold onto several forms of documentation with your home address that shows the house is your primary residence, such as:

  • Utility bills—electricity, water, gas, sewage, trash
  • Bank statements
  • Copy of your voter registration
  • Tax returns

Remember, these documents have to list your home address in order to act as proof of primary residence.

7. Any documentation, records, or receipts from your home sale

If there’s a question of whether you should save something or toss it, always save it. Because it could come in handy when tax season rolls around.

“You’re going to need records in case you get audited, of course,” says Rigney. Just in case the IRS chooses to look into your home sale, keep records of the entire process.

To stay organized, stash all of your critical documents and records related to your home sale in one folder, and store it with all of your other tax documentation. You’ll be glad come tax time!

In short—keep everything for taxes when selling a home

Sure, it might mean holding onto a stack of papers and receipts, but when it comes time to file your taxes, you never know what might come in handy.

Aside from the major home sale documents that are necessary for when you report your home sale on your taxes, keep any receipts and proof that you lived in your home just in case. And remember, speak with a tax professional and a top real estate agent to help you get through your taxes and your home sale with ease.

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