Closing on a home produces a thick stack of paper, and most of it goes into a drawer and is forgotten. A few of those documents, plus some you will receive every year afterwards, matter for your taxes, sometimes decades later when you sell. This guide explains which records to keep, why they matter and how long to hold on to them.
Records from closing day
Your settlement package is the starting point for your home's tax history. The most important pieces are:
- The Closing Disclosure (or an older HUD-1 settlement statement). It lists the purchase price, loan amount, any points you paid, prorated property taxes and the settlement fees. Several of these figures feed into deductions in the year you buy and into your cost basis later.
- The deed and purchase contract. These confirm the date you acquired the property and the price, both of which matter when you eventually sell.
- Receipts for items paid outside closing. Inspection, survey or appraisal fees paid separately may not appear on the Closing Disclosure, so keep the invoices.
Some settlement costs, such as title insurance, recording fees and certain legal fees, are generally added to the home's basis rather than deducted. Others, such as prepaid mortgage interest or qualifying points, may be deductible if you itemize. IRS Publication 530 (for homeowners) and Publication 551 (basis of assets) explain which is which.
Records you receive every year
Form 1098, Mortgage Interest Statement
If you pay mortgage interest to a lender, the lender sends Form 1098 early in the year. It reports the interest you paid, any points, and sometimes property taxes paid from escrow. If you itemize deductions, these amounts go on Schedule A. Check the form against your own records: if your loan was sold or transferred during the year, you may receive more than one 1098.
Property tax statements
Texas has no state income tax, but property taxes are set locally and can be significant. Your county tax assessor-collector issues the annual statement; if your lender pays the bill through escrow, the escrow account statement shows what was actually paid and when. State and local taxes, including property tax, are deductible only if you itemize and only up to the federal limit for that year, so keep proof of the amount paid in each calendar year.
Homestead exemption paperwork
In Texas, a homestead exemption is applied for through your county appraisal district, not on your federal return. Keep a copy of the approved application and any appraisal notices. They help you check that your tax bill reflects the exemption and they document that the home is your principal residence.
Improvement records: the ones people lose
When you sell a home, your gain is broadly the selling price (less selling costs) minus your adjusted basis. Basis starts with what you paid and increases with capital improvements: additions, a new roof, replacement HVAC, remodelled kitchens, new fencing or landscaping that adds value. Ordinary repairs and maintenance, such as repainting a room or fixing a leak, generally do not add to basis.
Many homeowners can exclude a large part of the gain on the sale of a main home if they meet the ownership and use tests, but not everyone qualifies, and the exclusion has a ceiling. Good improvement records can reduce or eliminate taxable gain if your situation falls outside the exclusion, so keep:
- Contracts and paid invoices for each project
- Proof of payment (bank or card statements)
- Permits and before-and-after photos, where available
- A simple running list with the date, description and cost of each improvement
How long to keep everything
The general IRS guidance is to keep records that support an item on a return until the period of limitations for that return expires. For property, that period does not start until you file the return for the year you sell the home. In practice that means:
- Closing documents and improvement records: keep for as long as you own the home, then for several years after the return that reports the sale.
- Annual Forms 1098 and property tax proofs: keep with the tax return for the year they relate to, for as long as you keep that return.
- Records from a previous home: keep them if the old home's figures carried over into your current home's basis under older rules.
A simple filing system
A single folder (paper or digital) labelled with the property address works well. Scan the Closing Disclosure, deed and every improvement invoice, and save each year's 1098 and property tax statement in a subfolder for that tax year. Back up digital copies in more than one place. If you refinance, add the new Closing Disclosure, because points on a refinance are often handled differently from points on a purchase.
This article is general information, not tax or legal advice. Check current rules in IRS Publications 523, 530 and 551 or with a qualified tax professional.