A Record Retention Guide for Real Estate Transactions

Unless you have unlimited storage in your home or office, you may find yourself wondering if you really need to keep all of your paperwork and, if so, for how long. There is no one-size-fits-all answer. The length of time depends on the type of document and the related expenses or events. Before you turn on the shredder, here are some general guidelines regarding document retention related to real estate transactions.

The IRS Rule of Thumb

The IRS states that you should keep tax returns and the supporting documents for at least three years after you file the return. Why? The statute of limitations (the amount of time the IRS has to audit you or the amount of time you can amend your return) is generally three years. However, the rules change from three years if you (1) keep supporting documents for six years if you underreported income by more than 25% of the gross income shown on your return; or (2) if no return is filed or there is fraud, the statute remains open indefinitely. Financial experts recommend that you keep your documents for a minimum of seven years after your return is filed.

Documents for Homeowners

Documents to retain as long as you or your spouse owns the property

• Property deeds
• Condo association covenants, codes and restrictions
• Capital improvement receipts and invoices
• Home inspection reports

Documents to retain until your warranty or policy expires

• Service contracts and home warranties
• Homeowners insurance policies
• Home repair receipts

Documents to retain indefinitely

• Records of paid mortgages (certificate of satisfaction or lien release)
• Closing disclosure statements (settlement statement or HUD-1 settlement sheet)
• List of household possessions

Documents to retain until statute of limitations expires (generally three years after the due date of the return)

• Tax returns
• Closing disclosure statements
• Property tax payments (retain the tax bills and the canceled checks)
• Capital improvement receipts and invoices
• Form 1098 Mortgage Interest Statements
• Form 1099-S Proceeds from Real Estate Transactions
• Proof that your home was your primary residence for at least two of the prior five years (e.g., utility bills, voter registrations, prior tax returns)
• Employment records for live-in help (e.g., Form W-2s, Form W-4s, pay and benefits statements) keep all records of employment taxes for at least four years after filing Q4 for the year

Documents for Investment Real Estate

Documents to retain as long as you own the property

• Property deeds
• Appraisals or valuations used to determine depreciation
• Capital improvement receipts and invoices
• Receipts for repairs and maintenance
• Insurance payment receipts

Documents to retain until your policy or agreement expires

• Insurance policies
• Tenant lease agreements

Documents to retain indefinitely

• Partnership or LLC agreements for real estate investments
• Closing disclosure statements (aka settlement statement or HUD-1 settlement sheet)

Miscellaneous Documents

Documents to retain as long as you or your spouse owns the property

• Original owners' sales contracts and deeds for a home received as a gift
• The fair market value for inherited properties on the date of the decedent’s death and any rules for heirs' use of home
• Divorce decrees with home sale clause

Documents to retain until updated

• Wills and property trusts

State Document Retention Requirements

The guidance above follows IRS guidelines. When determining how long to retain your documents, don’t forget to research your state’s tax record retention requirements. There are some states where the statute of limitations is longer than the IRS’s.

How You Store Your Documents Is Just as Important

When it comes to archiving documents, consider how you will safely and securely store them. Documents can be stored traditionally via paper, digitally or a combination.

Paper Storage

Storing documents in paper form may seem redundant in today’s digital world, but there are reasons to consider this option. A paper copy is a good back-up in case of a data loss. Documents should be stored in a locked fireproof cabinet or safe deposit box.

Digital Storage

You may also scan and store your documents digitally. Many companies offer cloud-based storage where you can easily access all of your files. After uploading your documents, shred any unneeded paper copies.

Be sure all relevant parties are aware of where the documents are stored and how to access them. And always consult with your accountant and/or attorney when creating a record retention policy. Legal requirements may differ in certain circumstances and should be considered when creating a policy.