Keeping your home improvement receipts might really pay off when it comes time to sell, especially if you plan on holding on to your home for some time.
I just got off the phone with a client who wants to sell his home. Unfortunately he didn’t keep all the receipts for the many improvements he has done to his home over the last twenty years. Dual pane windows, hardwood floors, an addition, remodeled kitchen and much more. At a guess, probably easily over $100,000 in improvements.
The home was purchased in the early 80s for $150,000 and will sell today for around $630,000. The owner is single so he will be exempted from paying taxes on the first $250,000 of profit as a single filer ($500,000 exemption for joint filers).
So with a sales price of $630,000, less the original purchase price of $150,000, there is a taxable profit of $480,000 (before any selling costs). From this amount the owner will get the $250,000 exemption, reducing the taxable profit to $230,000. Had receipts been kept, this taxable gain could have been further reduced by over $100,000, a significant tax savings.
If you don’t plan on living in your home for very long, then it may not be worth the effort to track improvement expenses. However, if you plan to live in your house a long time or make lots of upgrades, saving receipts could save you considerable money down the road.
You might want to think twice before throwing out those Home Depot / Lowes receipts or that invoice from the contractor.