Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, April 22, 1990 TAG: 9004230414
SECTION: HOMES PAGE: D3 EDITION: METRO
SOURCE: The New York Times
DATELINE: LENGTH: Long
This is a chore that ought to be done regularly.
Every homeowner should keep such records, preferably in chronological order, for all the years a dwelling is owned. Why? Because they can save money if the owner decides to sell, has to make an insurance claim or buys a major appliance that turns out to be troublesome.
Get rid of papers you do not need while you are spring cleaning, but think twice when it comes to those concerning your dwelling and some of the things in it. Here is a guide to what to keep and why.
\ Renovation receipts: Keep these because the Internal Revenue Service permits taxpayers to deduct the costs of home improvements from any profit that is made on the sale of a home, thereby reducing the income tax on the gain.
For example, if a house cost $150,000 to buy and over time the owner spent $50,000 on improvements - a new kitchen or baths, or an added bedroom or garage - the owner can adjust the total value of the investment in the home to $200,000 by adding the cost of the improvements. If the sale price of the home is $300,000, the taxable part of the gain would be $100,000 rather than the $150,000 difference between the purchase price and the sale price.
Neil O'Keefe, a spokesman for the IRS, says the agency is not flexible about the documentation it requires to validate such deductions.
Taypayers must keep scrupulous records showing such expenditures as the cost of materials, expenses for labor and new fixtures, and professional fees for contractors and architects.
While the cost of most home improvements can be deducted from a seller's profit, repairs costs cannot be. The bill for a new roof, for example, would be deductible, but the cost of patching the old one would not.
The IRS also allows home sellers to postpone or defer the payment of tax on the profit from the sale of a principal residence, as long as it is applied to the purchase of another home of equal or greater value within two years.
Some taxpayers may have deducted home improvement costs to adjust their profits on a series of residential transactions as they traded up. The IRS advises homeowners to keep records and receipts for all tax years in which they sold homes just in case an audit requires proof of all the adjusted amounts over the years.
Another reason to keep records of home improvements after the jobs have been done is that these papers can be ammunition for challenging property tax assessments.
It might be easier, for example, to convince an assessor that the swimming pool a homeowner put in did not increase the value of the property by $50,000 if it could be shown that the job cost only $15,000.
\ Major purchases: The strongest argument for keeping these papers is that insurance adjusters are very strict about documentation when it comes to claims.
J. Robert Hunter, president of the National Insurance Consumer Organization, a consumer education and advocacy group in Virginia, said that the insured needs proof of ownership and of the value of the lost property to get the best settlement possible.
It is suggested that receipts be kept for furniture, jewelry, appliances, stereo equipment, silver, furs, very expensive clothing or any other items for which a homeowner might make a claim.
Hunter recommended that these records of purchase be photocopied and kept in a secure place away from the home, like a safe-deposit box or in an office file.
\ Appliances: Expired warranties may seem like the most expendable of all household documents. But Rose Manfurdini of the Major Appliance Consumer Action Council in Chicago recommends that consumers keep these and all other records for as long as they own the appliances. This is particularlly true she said for products with a poor performance history. Even if an appliance is out of warranty, she said, a record of numerous repairs might help the consumer convince the manufacturer that some sort of concession is due.
As for owner manuals, most people either misplace or throw them away once they are comfortable using the appliances. Making the effort to save them can alleviate frustration later on when something goes wrong. needed. In addition, if the sale of a home includes the major appliances, the new owner will appreciate having the manuals.
\ Utility bills: Most homeowners can safely toss out telephone, electric, gas and water bills unless they are needed to document deductions for home offices on income tax returns.
Two free publications that consumers might find useful are published by the IRS. They are "Record Keeping for Individuals" (Publication 552) and "Business Use of Your Home" (Publication 587). To have the booklets sent to you call the agency's toll-free number: 800-424-3676.
by CNB