By Anessa Cohen
Now that Pesach is over and the dishes are put away, the next priority for all those last-minute filers like me is to take care of tax returns.
You would think I’d try to get them done earlier, realizing that the previous year I put them aside while getting my act together for Pesach, but somehow I never learn my lesson from year to year and always end up filing at the last minute.
My paperwork is always ready to go in January, stacked and itemized in a folder for review before putting the final touches on everything. It is those tedious final touches that I somehow never get around to until I can procrastinate no longer. It is almost as if I will not have to make out a check to the IRS if I put off completing my paperwork. We all know that’s just a pipe dream!
But although I may procrastinate with the actual finalizing of my yearly tax return, there is another folder, which I keep next to my tax-preparation documents, that I update meticulously year after year, going back the 30 years that I own my house.
This is a folder that I also encourage all my clients to maintain for the duration of the time they live in their homes, because this file will eventually make the homeowners a lot of money when they sell their home and need to compute how much taxes they may or may not owe the government towards the capital gains they realize on the sale of their home.
As we all know, even a few years can make a tremendous difference in how much money you can make on the sale of your home. You may buy a house at one price and then see that price double in value in as little as five or seven years. For those selling a home after living what seems like a lifetime in it—30 years, 40 years, or even more—the value can translate to ten times the price of what they originally paid. Although the idea of making so much money on your home sounds great, trying to figure out how to mitigate the capital-gains taxes that you might owe is a little deflating if you don’t have an accounting of deductible items that can be used against the capital-gains taxes that would ordinarily be due.
So this is where my trusty file comes into play in my own plan. If you figure all the renovations, updates, repairs, maintenance, construction, upgrades, etc., that you have done or are doing from the first day you purchased your home, and you keep a complete file not only itemizing those items, but also with receipts or copies of those receipts for the work, when you finally sell, no matter how many years later, you can add up all those receipts for work done on your house and then deduct the total from the capital-gains total you are realizing on your sale.
By deducting these receipts, you will lower the amount of capital gains, thereby lowering the amount of capital-gains taxes you owe as a result. And based on the amount of work you did on your house over the time you have lived there, this can translate into a huge amount of money!
As I have lived in my house now for over 30 years, my trusty file with the receipts has now graduated to a trusty box with my receipts. When the time comes and I am ready to sell, I plan to deduct all of these receipts against the capital gains to be realized on the sale of my house. And who knows—maybe the government will owe me money! What a thought!
Anessa Cohen lives in Cedarhurst and is a licensed real-estate broker (Anessa V Cohen Realty) and a licensed N.Y.S. loan officer (FM Home Loans) with over 20 years of experience offering full-service residential, commercial, and management real-estate services as well as mortgage services. She can be reached at 516-569-5007 or via her website, www.AVCrealty.com. Readers are encouraged to send questions or comments to anessa@AVCrealty.com.