Seniors Warned of Rising Impersonation Scams, IR-2024-164 The IRS has issued a warning about the increasing threat of impersonation scams targeting seniors. These scams involve fraudsters posing as government officials, including IRS agents, to steal s...
OR - Nexus safe harbor exceeded by manufacturer The Oregon Supreme Court affirmed a tax court decision holding a cigarette manufacturer’s activities, including return of goods and "prebook orders," created nexus for purposes of Oregon’s corpora...
The IRS has providedguidance on two exceptions to the 10 percent additional tax under Code Sec. 72(t)(1) for emergency personal expense distributions and domesticabusevictimdistributions. These exceptions were added by the SECURE 2.0 Act of 2022, P.L. 117-328, and became effective January 1, 2024. The Treasury Department and the IRS anticipate issuing regulations under Code Sec. 72(t) and request comments to be submitted on or before October 7, 2024.
The IRS hasprovidedguidanceon two exceptions to the 10 percent additional tax underCode Sec. 72(t)(1)foremergencypersonal expensedistributionsanddomesticabusevictimdistributions. These exceptions were added by the SECURE 2.0 Act of 2022,P.L. 117-328, and became effective January 1, 2024. The Treasury Department and the IRS anticipate issuing regulations underCode Sec. 72(t)and request comments to be submitted on or before October 7, 2024.
DistributionsforEmergencyPersonal Expenses
Code Sec. 72(t)(2)(I)provides an exception to the 10 percent additional tax for adistributionfrom an applicable eligibleretirementplan to an individual foremergencypersonal expenses. The term"emergencypersonal expensedistribution"means anydistributionmade from an applicable eligibleretirementplan to an individual for purposes of meeting unforeseeable or immediate financial needs relating to necessary personal or familyemergencyexpenses. The IRS specifically noted thatemergencyexpenses could be related to: medical care; accident or loss of property due to casualty; imminent foreclosure or eviction from a primary residence; the need to pay for burial or funeral expenses; auto repairs; or any other necessaryemergencypersonal expenses.
The IRS provides that a plan administrator or IRA custodian may rely on a written certification from the employee or IRA owner that they are eligible for anemergencypersonal expensedistribution. Furthermore, the IRS provides that anemergencypersonal expensedistributionis not treated as a rolloverdistributionand thus is not subject to mandatory 20% withholding. However, thedistributionis subject to withholding, the IRS said. If theemergencypersonal expensedistributionis repaid, it is treated as if the individual received thedistributionand transferred it to an eligibleretirementplan within 60 days ofdistribution.
If an otherwise eligibleretirementplan doesnotofferemergencypersonal expensedistributions, the IRS indicated that an individual may still take an otherwise permissibledistributionand treat it as such on their federal income tax return. The individual claims on Form 5329 that thedistributionis anemergencypersonal expensedistribution, in accordance with the form’s instructions. The individual has the option to repay thedistributionto an IRA within 3 years.
DistributionstoDomesticAbuseVictims
Code Sec. 72(t)(2)(K)provides an exception to the 10 percent additional tax for an eligibledistributionto adomesticabusevictim(domesticabusevictimdistribution). Theguidancedefines a"domesticabusevictimdistribution"as anydistributionfrom an applicable eligibleretirementplan to adomesticabusevictimif made during the 1-year period beginning on any date on which the individual is avictimofdomesticabuseby a spouse ordomesticpartner."Domesticabuse"is defined as physical, psychological, sexual, emotional, or economicabuse, including efforts to control, isolate, humiliate, or intimidate thevictim, or to undermine thevictim’s ability to reason independently, including by means ofabuseof thevictim’s child or another family member living in the household.
As withdistributionsforemergencypersonal expenses, aretirementplan may rely on an employee’s written certification that they qualify for adomesticabusevictimdistribution. Similarly, if an otherwise eligibleretirementplan doesnotofferdomesticabusevictimdistributions, the IRS indicated that an individual may still take an otherwise permissibledistributionand treat it as such on their federal income tax return. The individual claims on Form 5329 that thedistributionis adomesticabusevictimdistribution, in accordance with the form’s instructions. The individual has the option to repay thedistributionto an IRA within 3 years.
Request for Comments
The Treasury Department and the IRS invite comments on theguidance, and specifically on whether the Secretary should adopt regulations providing exceptions to the rule that a plan administrator may rely on an employee’s certification relating toemergencypersonal expensedistributionsand procedures to address cases of employee misrepresentation. Comments should be submitted in writing on or before October 7, 2024, and should include a reference toNotice2024-55.
On June 17, 2024, the U.S. Department of the Treasury and the Internal Revenue Service announced a new regulatory initiative focused on closing taxloopholes and stopping abusivepartnershiptransactions used by wealthy taxpayers to avoid paying taxes.
On June 17, 2024, theU.S. Department of the Treasuryand theInternal Revenue Serviceannounced a new regulatoryinitiativefocused on closingtaxloopholesand stoppingabusivepartnershiptransactionsused by wealthy taxpayers to avoid payingtaxes.
Specifically targeted by this newtaxcompliance effort arepartnershipbasis shiftingtransactions. In thesetransactions, a single business that operates through many different legal entities (related parties) enters into a set oftransactionsthat manipulatepartnershiptaxrules to maximizetaxdeductions and minimizetaxliability. These basis shiftingtransactionsallow closely related parties to avoidtaxes.
The use of theseabusivetransactionsgrew during a period of severe underfunding for theIRS. As such, the audit rates for these increasingly complex structures fell significantly. It is estimated that theseabusivetransactions, which cut across a wide variety of industries and individuals, could potentially cost taxpayers more than $50 billion over a 10-year period, according to anIRSNews Release.
"Using Inflation Reduction Act funding, we are working to reverse more than a decade of declining audits among the highest income taxpayers, as well as complexpartnershipsand corporations,"IRSCommissioner Danny Werfel said during a press call discussing the new effort on June 14, 2024.
"This announcement signals theIRSis accelerating our work in thepartnershiparena, which has been overlooked for more than a decade and allowedtaxabuse to go on for far too long,"saidIRSCommissioner Danny Werfel."We are building teams and adding expertise inside the agency so we can reverse long-term compliance declines that have allowed high-income taxpayers and corporations to hide behind complexity to avoid payingtaxes. Billions are at stake here".
This multi-stage regulatory effort announced by theTreasuryandIRSincludes the following guidance designed to stop the use of basis shiftingtransactionsthat use related-partypartnershipsto avoidtaxes:
proposed regulationsunder existing regulatory authority to stop related parties in complexpartnershipstructures from shifting thetaxbasis of their assets amongst each other to takeabusivedeductions or reduce gains when the asset is sold;
proposed regulation to require taxpayers and their material advisers to report if they and their clients are participating inabusivepartnershipbasis shiftingtransactions; and
aRevenue Rulingproviding that certain related-partypartnershiptransactionsinvolving basis shifting lack economic substance.
"Treasuryand theIRSare focused on addressing high-endtaxabuse from all angles, and the proposed rules released today will increasetaxfairness and reduce the deficit,"said U.S. Secretary of theTreasuryJanet L. Yellen.
In the June 14, 2024, press call, Commissioner Danny Werfel also noted that there will be an increase in audits of largepartnershipswith average assets over $10 billion dollars and larger organizational changes taking place to support compliance efforts, including the creation of a new associate office that will focus exclusively onpartnerships, S corporations, trusts, and estates.
By Catherine S. Agdeppa, Content Management Analyst
A savingsaccount with the tax benefits of a health savingsaccount or an educations savingsaccount but without the singular restricted focus could be something that gains traction as Congress addresses the tax provision of the Tax Cuts and Jobs Act that expire in 2025.
Asavingsaccountwith the tax benefits of a healthsavingsaccountor an educationssavingsaccountbut without the singular restricted focus could be something that gains traction as Congress addresses the tax provision of the Tax Cuts and Jobs Act that expire in 2025.
The concept was promoted by multiple witnesses testifying during a recentSenateFinanceCommitteehearingon the subject of childsavingsaccountsand other tax advantagedaccountsthat would benefit children. It also is the subject of a recently releasedreportfrom The Tax Foundation.
Rather thanpushnew limited-usesavingsaccounts,"policymakers may want to consider enacting a more comprehensivesavingsprogram such as auniversalsavingsaccount,"Veronique de Rugy, a research fellow at George Mason University, testified before thecommitteeduring the May 21, 2024, hearing."Universalsavingsaccountswill allow workers to save in one simpleaccountfrom which they would withdraw without penalty for any expected or unexpected events throughout their lifetime."
She noted that, like other more focusedsavingsaccounts, like healthsavingsaccounts, it would have"the benefit of sheltering some income from the punishing double taxation that our code imposes."
De Rugy added thatuniversalsavingsaccounts"have a benefit that they do not discouragesavingsfor those who are concerned that the conditions for withdrawals would stop them from addressing an emergency in their family."
Adam Michel, director of tax policy studies at the Cato Institute, who also promoted the idea ofuniversalsavingsaccounts. He said theseaccounts"would allow families to save for their kids or any of life’s other priorities. The flexibility of theseaccountsmake them best suited for lower and middle income Americans."
He also noted that they are promotingsavingsin countries that have implemented them, including Canada and United Kingdom.
"For example, almost 60 percent of Canadians own tax-freesavingsaccounts,"Michel said."And more than half of thoseaccountholders earned the equivalent of about $37,000 a year. Theseaccountshave helped increasesavingsand support the rest of the Canadiansavingsecosystem."
De Rugy noted that in countries that have implemented it, they function like a Rothaccountin that money that has already been taxed can be put into it and not penalized or taxed upon withdrawal.
Michel also noted that the if the tax benefits extend to corporations as they do with deposits to employee healthsavingsaccounts,"to the extent that you lower the corporate income tax, you’re going to encourage a different additional investment intosavingsby those entities."
Simulating TheUniversalSavingsAccountImpact
The Tax Foundation in its report simulated how auniversalsavingsaccountcould work, based on how they are implemented in Canada. The simulation assumed theaccountscould go active in 2025 for adults aged 18 years or older.
On a post-tax basis, individuals would be allowed to contribute up to $9,100 on a post-tax basis annually, with that cap indexed for inflation. Any unused"contribution room"would be allowed to be carried forward. Earnings would be allowed to grow tax-free and withdrawals would be allowed for any purpose without penalty or further taxation. Any withdrawal would be added back to that year’s contribution room and that would be eligible for carryover as well.
"The fiscal cost of this USA policy would be offset by ending the tax advantage of contributions to HSAs beginning in 2025,"the report states."As such, future contributions to HSAs would be given normal tax treatment, i.e. included in taxable income and subject to payroll tax with subsequent returns on contributions also included in taxable income."
In this scenario, the Tax Foundation report estimates that"this policy change would on net raise tax revenue by about $110 billion over the 10-year budget window."
As for the impact on taxpayers, the"after-tax income would fall by about 0.1 percent in 2025 and by a smaller amount in 2034, reflecting the net tax increase in those years,"the report states."Over the long run, and accounting for economic impacts, taxpayers across every quintile would see a small increase in after-tax income on average, but the top 5 percent of earners would continue to see a small decrease in after-tax income on average."
The Internal Revenue Service’s use of artificial intelligence in selecting tax returns for National Research Program audits that areused to estimate the taxgapneeds more documentation and transparency, the U.S. Government Accountability Office stated.
The Internal Revenue Service’s use of artificial intelligence in selectingtaxreturns for National Research Programauditsthat areused toestimatethetaxgapneedsmore documentation andtransparency, the U.S.Government Accountability Officestated.
In areportissued June 5, 2024, the federal government watchdog noted that while the agency usesAIto improve the efficiency andselectionofauditcases to help identify noncompliance,"IRS has not completed its documentation of several elements of itsAIsampleselectionmodels, such as key components and technical specifications."
GAOnoted that the IRS began usingAIin a pilot intaxyear 2019 for samplingtaxreturns for NRPaudits. The current plan is to useAIto create a sample size of 4,000 returns to measure compliance and help informtaxgapestimates, althoughGAOexpressed concerns about the accuracy of theestimateswith that sample size.
"For example, NRP historically included more than 2,500 returns that claimed the Earned IncomeTaxCredit, but the redesigned sample has included less than 500 of these returns annually,"the report stated.
IRS toldGAOthat it"is exploring ways to combine operationalauditdata with NRPauditdata when developing itstaxgapestimates. IRS officials also told us that if IRS can reliably combine these data fortaxgapanalysis, IRS might be better positioned to identify emerging trends in noncompliance and reduce the uncertainty of theestimatesdue to the small sample size."
The report also highlighted the fact that the agency"has multiple documents that collectively provide technical details and justifications for the design of theAImodels. However, no set of documents contains complete information and IRS analyst could use to run or update the models, and several key documents are in draft form."
"Completing documentation would help IRS retain organizational knowledge, ensure the models are implemented consistently, and make the process more transparent to future users,"the report stated.
The IRS has provided guidance regarding whether taxpayers receiving loans under the Paycheck Protection Program (PPP) may deduct otherwise deductible expenses. Act Sec. 1106(i) of the Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136) did not address whether generally allowable deductions such as those under Code Secs. 162 and 163 would still be permitted if the loan was later forgiven pursuant to Act Sec. 1106(b). The IRS has found that such deductions are not permissible.
The IRS has provided guidance regarding whether taxpayers receiving loans under the Paycheck Protection Program (PPP) may deduct otherwise deductible expenses. Act Sec. 1106(i) of the Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136) did not address whether generally allowable deductions such as those under Code Secs. 162 and 163 would still be permitted if the loan was later forgiven pursuant to Act Sec. 1106(b). The IRS has found that such deductions are not permissible.
PPP Loans The CARES Act expanded the Small Business Administration’s (SBA’s) existing Section 7(a) loan program to include certain PPP loans. The PPP is made available from the SBA to provide small businesses with loans to help pay payroll costs, mortgages, rent, and utilities during the COVID-19 (coronavirus) crisis. All payments of principal, interest, and fees under the loans are deferred for at least 6 months. The loans are also forgiven for amounts payroll costs, mortgage or rent obligations, and certain utility payments incurred between February 15 and June 30. The loans are 100 percent guaranteed by the SBA.
Deductions Prohibited If the SBA forgives a taxpayer’s PPP loan pursuant to Act. Sec. 1106(b) of the CARES Act, the amount of the loan is excluded from gross income. Under Reg. §1.265-1 taxpayers cannot deduct expenses that are allocable to income that is either wholly excluded from gross income or wholly exempt from the taxes. This rule exists in order to prevent double tax benefits. Thus, the IRS has determined that taxpayers who have their PPP loans forgiven may not deduct any business or interest expenses related to the income associated with the loan.
Treasury and the Small Business Administration (SBA) have worked together to release the Paycheck Protection Program (PPP) Loan Forgiveness Application. According to Treasury’s May 15 press release, the application and correlating instructions inform borrowers how to apply for forgiveness of PPP loans under the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act ( P.L. 116-136). The PPP was enacted under the CARES Act to provide eligible small businesses with loans during the COVID-19 pandemic.
Treasury and the Small Business Administration (SBA) have worked together to release the Paycheck Protection Program (PPP) Loan Forgiveness Application. According to Treasury’s May 15 press release, the application and correlating instructions inform borrowers how to apply for forgiveness of PPP loans under the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act ( P.L. 116-136). The PPP was enacted under the CARES Act to provide eligible small businesses with loans during the COVID-19 pandemic.
Additionally, SBA is expected to issue regulations and guidance to assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities, according to Treasury.
Measures included in the application and instructions intended to reduce compliance burdens and simplify the process for borrowers include:
options to calculate payroll costs using an "alternative payroll covered period" that aligns with borrowers’ regular payroll cycles;
flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan;
step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness;
borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30; and
the addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined.
Although you may want your traditional individual retirement accounts (IRAs) to keep accumulating tax-free well into your old age, the IRS sets certain deadlines. The price for getting an upfront deduction when contributing to a traditional IRA (or having a rollover IRA) is that Uncle Sam eventually starts taxing it once you reach 70½. The required minimum distribution (RMD) rules under the Internal Revenue Code accomplish that.
Although you may want your traditional individual retirement accounts (IRAs) to keep accumulating tax-free well into your old age, the IRS sets certain deadlines. The price for getting an upfront deduction when contributing to a traditional IRA (or having a rollover IRA) is that Uncle Sam eventually starts taxing it once you reach 70½. The required minimum distribution (RMD) rules under the Internal Revenue Code accomplish that.
If distributions do not meet the strict minimum requirements for any one year once you reach 70½, you must pay an excise tax equal to 50 percent, even if you kept the money in the account by mistake.
Required minimum distribution
The traditional IRA owner must begin receiving a minimum amount of distributions (the RMD) from his or her IRA by April 1 of the year following the year in which he or she reaches age 70½. That first deadline is referred to as the required beginning date.
If, in any year, you as a traditional IRA owner receive more than the RMD for that year, you will not receive credit for the additional amount when determining the RMD for future years. However, any amount distributed in your 70½ year will be credited toward the amount that must be distributed by April 1 of the following year. The RMD for any year after the year you turn 70½ must be made by December 31 of that year.
Distribution period
The distribution periodis the maximum number of years over which you are allowed to take distributions from the IRA. You calculate your RMD for each year by dividing the amount in the IRA as of the close of business on December 31 of the preceding year by your life expectancy at that time as set by special IRS tables. Those tables are found in IRS Publication 590, "IRAs Appendix C."
Example: Say you were born on November 1, 1936, are unmarried, and have a traditional IRA. Since you have reached age 70½ in 2007 (on May 1 to be exact), your required beginning date is April 1, 2008. Assume further that as of December 31, 2006, your account balance was $26,500. Using Table III, the applicable distribution period for someone your age as of December 31, 2007 (when you will be age 71) is 26.5 years. Your RMD for 2007 is $1,000 ($26,500 ÷ 26.5). That amount must be distributed to you by April 1, 2008.
The RMD rules do not apply to Roth IRAs; they only apply to traditional IRAs. That is one of the principal estate planning reasons for setting up a Roth IRA or rolling over a traditional IRA into a Roth IRA. The downside of a Roth IRA, of course, is not getting an upfront deduction for contributions, or having to pay tax on the balance when rolled over from a traditional IRA into a Roth IRA.
Please contact this office if you need any help in determining a RMD or in deciding whether a rollover to a Roth IRA now to avoid RMD issues later might make sense for you.
Q. I use my computer for both business and pleasure and I am confused about how much I can deduct. Also, how are PDAs such as Palm Pilots, etc. deducted for tax purposes?
Q. I use my computer for both business and pleasure and I am confused about how much I can deduct. Also, how are PDAs such as Palm Pilots, etc. deducted for tax purposes?
A. Because computers and peripheral equipment are viewed as more susceptible than other business property to unwarranted deductions for personal use, they are subject to special scrutiny under the tax law. This scrutiny comes from their classification as "listed property," which limits the amount that may be deducted each year.
A computer as listed property only becomes an issue if it is not used exclusively in business. If a computer is used exclusively at the taxpayer's regular business establishment or in the taxpayer's principal trade or business, the listed property limitations don't apply at all.
Any computer that you use predominately for pleasure may not be written-off over its life nearly as quickly as exclusive-use computers. If your business usage does not meet the predominant use test, you are relegated to using a much slower depreciation method (the ADS, straight-line method) over the longer-ADS recovery period.
Your computer will meet the predominant use test for any tax year if its qualified business use is more than 50% of its total use. You must review your computer's usage and determine the percentage usage for each of its various uses (business, investment, and personal). When computing the predominant use test, any investment use of your computer cannot be considered as part of the percentage of qualified business use. However, you do use the combined total of business and investment use to figure your depreciation deduction for the property. It's up to you to prove business use to the IRS; the IRS does not need to prove personal use to reject your deductions.
In order to claim your computer expenses, you must meet the adequate records requirements by maintaining a "log" or other documentary evidence that sufficiently establishes the business/investment percentage claimed. The log should be similar to a log you would keep to track your auto expenses, indicating date, time of usage, business or nonbusiness, and business reason. Good documentation is always the key to success if your return is ever audited.
Finally, what about application of these rules to PDA's? The shorter the designated "life" of the property, the faster you can write-off its cost. Cell phones are generally considered 7-year property (the cost is depreciated over seven years). Computers are generally considered 5-year property, and computer-software normally is 3-year property. PDA's are generally classified as 5-year property, being considered wireless computers. If a PDA includes a cell phone feature, as long as that feature is not predominant and removable, it continues to fall under the 5-year property rule. Software that you may download to your PDA is 3-year property. Software that you buy already loaded into the PDA, however, is 5-year property. Monthly charges for a wireless service provider are deductible as paid each month, just as your business would deduct any phone or internet service bill.
Most homeowners have found that over the past five to ten years, real estate -especially the home in which they live-- has proven to be a great investment. When the 1997 Tax Law passed, most homeowners assumed that the eventual sale of their home would be tax free. At that time, Congress exempted from tax at least $250,000 of gain on the sale of a principal residence; $500,000 if a joint return was filed. Now, those exemption amounts, which are not adjusted for inflation, don't seem too generous for many homeowners.
Most homeowners have found that over the past five to ten years, real estate -especially the home in which they live-- has proven to be a great investment. When the 1997 Tax Law passed, most homeowners assumed that the eventual sale of their home would be tax free. At that time, Congress exempted from tax at least $250,000 of gain on the sale of a principal residence; $500,000 if a joint return was filed. Now, those exemption amounts, which are not adjusted for inflation, don't seem too generous for many homeowners.
What can be done?
Keeping lots of receipts is one answer! Remember, it will be the gain on your home that is potentially taxable, not full sale price. Gain is equal to net sales price minus an amount equal to the price you paid for your house (including mortgage debt) plus the cost of any improvements made over the years. Bottom line: If your residence has gain that will otherwise be taxed, you will get around 30 percent back on the cost of the improvements (assume your tax bracket is about 30 percent when you sell), simply by keeping good records of those improvements.
The basis of your personal residence is generally made up of three basic components: original cost, improvements, and certain other basis adjustments
Original cost
How your home was acquired will need to be considered when determining its original cost basis.
Purchase or Construction. If you bought your home, your original cost basis will generally include the purchase price of the property and most settlement or closing costs you paid. If you or someone else constructed your home, your basis in the home would be your basis in the land plus the amount you paid to have the home built, including any settlement and closing costs incurred to acquire the land or secure a loan.
Gift. If you acquired your home as a gift, your basis will be the same as it would be in the hands of the donor at the time it was given to you.
Inheritance. If you inherited your home, your basis is the fair market value on the date of the deceased's death or on the "alternate valuation" date, as indicated on the federal estate tax return filed for the deceased.
Divorce. If your home was transferred to you from your ex-spouse incident to your divorce, your basis is the same as the ex-spouse's adjusted basis just before the transfer took place.
Improvements
If you've been in your home any length of time, you most likely have made some home improvements. These improvements will generally increase your home's basis and therefore decrease any potential gain on the sale of your residence. Before you increase your basis for any home improvements, though, you will need to determine which expenditures can actually be considered improvements versus repairs.
An improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. The cost of any improvements cannot be deducted and must be added to the basis of your home. Examples of improvements include putting room additions, putting up a fence, putting in new plumbing or wiring, installing a new roof, and resurfacing your patio. It doesn't need to be a big project, however, just relatively permanent. For example, putting in a skylight or a new kitchen sink qualifies.
Repairs, on the other hand, are expenses that are incurred to keep the property in a generally efficient operating condition and do not add value or extend the life of the property. For a personal residence, these costs do not add to the basis of the home. Examples of repairs are painting, mending drywall, and fixing a minor plumbing problem.
Other basis adjustments
Additional items that will increase your basis include expenditures for restoring damaged property and assessing local improvements. Some common decreases to your home's basis are:
Insurance reimbursements for casualty losses.
Deductible casualty losses that aren't covered by insurance.
Payments received for easement or right-of-way granted.
Deferred gain(s) on previous home sales before 1998.
Depreciation claimed after May 6, 1997 if you used your home for business or rental purposes.
Recordkeeping
In order to document your home's basis, it is wise to keep the records that substantiate the basis of your residence such as settlement statements, receipts, canceled checks, and other records for all improvements you made. Good records can make your life a lot easier if the IRS ever questions your gain calculation. You should keep these records for as long as you own the home. Once you sell the home, keep the records until the statute of limitations expires (generally three years after the date on which the return was filed reporting the sale).