Q. I recently purchased a “fire-safe” box to store my family’s important papers (birth certificates, etc.). I thought I should also include the important house papers as well, but that’s when I got confused.
We purchased our home when first married in 1988. Since then we’ve refinanced twice (1998 and 2002) and at some point our original mortgage was transferred to another two lenders. In any case, we carefully saved all the papers for each transaction.
My fire-safe box is relatively small and I now find I don’t know which papers I should save. I’ve got two deeds of trust — one from the original and the other from the 1998 refinancing. Our 2002 refinancing was with the current lender at the time, so I’m not sure if they didn’t need to provide another deed of trust (as they already had one) or if I’ve lost it. I’ve also got the original 1988 sales agreement and the 1988 and 1998 settlement agreements — lots of other papers but not sure how important they are.
Finally, I also have papers from the opening of an equity line of credit with our primary bank. I’m hoping you can tell me, if our house were to burn down, what papers do we need to keep?
A. If your house burns down, you will not need any of the loan documents. The important ones — deed of trust (the mortgage documents) and the deed to your property — are all recorded among the land records in the state (or county) where your house is located. You might want to keep a copy of your last promissory note, just in case there is a question about its terms and conditions. You should also keep a copy of your home insurance policy, since there may be issues as to coverage and the policy controls.
But, more important, there are many documents that you will need for taxation purposes. Currently, homeowners who sell their house can take advantage of the up-to-$250,000 exclusion of gain (or if you are married and file a joint tax return, up to $500,000.)
If your profit is less than the maximum gain exclusion and if you are audited by the IRS, your original settlement statement showing the purchase price will be good evidence of what you paid for the house.
But if your profit is over that maximum, you want to increase your tax basis so that your profit will be smaller. How do you do this? First, if you have made major improvements to the house — such as remodeling your kitchen or bathroom, or an addition to the house — you will be able to increase your basis. But you will need proof, such as your construction contracts. Also, your settlement statements over the years may contain other items that can increase basis — such as attorney fees and many closing costs. You should discuss your specific situation with your tax advisers.
Perhaps it would be a good idea to get a larger firebox, or better yet, get a safe deposit box in a local bank. According to the IRS, “You can deduct safe deposit box rent if you use the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. You cannot deduct the rent if you use the box only for jewelry, other personal items, or tax-exempt securities.”
