10/20/2026
Proving Your Basis When Selling Your Home
When you sell your home, the tax on your gain depends on your basis, which is what you paid for the home plus the cost of improvements. But improvements count only if you can prove them.
Basis Matters More Every Year
The home sale exclusion of $250,000 ($500,000 for married couples) was set in 1997 and has never been adjusted for inflation, while home prices have roughly quadrupled since then. Many long-time homeowners now face a taxable gain when they sell.
In one court case, a couple claimed $286,070 in improvements but could not prove them. The court allowed $82,039, leaving the couple with tax on $101,907 of gain plus the cost of going to court.
What Counts
You add to basis any improvements that add value, extend the home’s life, or adapt the home to new uses, such as a new roof or a kitchen remodel. Repairs do not count, and neither do improvements you later removed or replaced. Depreciation, deducted casualty losses, insurance reimbursements, and energy credits reduce your basis.
Records to Keep
• The contract or proposal
• The final invoice
• Proof of payment
• A few dated photos
Scanned records in an organized electronic folder are fine. Keep them as long as you own the home, plus at least three years after the year of sale.
If you want to discuss the income tax records you need for your home, feel free to give us a call today.
