HOW LONG SHOULD YOU KEEP TAX RECORDS? Unfortunately, neither the Internal Revenue Service nor the Internal Revenue Code gives us any clear guidelines as to what records must be kept and what can be destroyed. The IRS merely states that records should be kept "for as long as they are important for any federal tax law." In general terms, this means that as long as a taxpayer's tax return is subject to audit by the Internal Revenue Service, the taxpayer is required to keep his or her books and records. Most records must be kept by the taxpayer for only three years after the tax return is filed, or three years after the due date, whichever is later. That is the general rule on record keeping. There are some documents, especially involving real estate and fixed assets, which you should keep longer, and in some cases, forever. Statute of Limitations There is a three year statute of limitations for the IRS to assess a tax and impose a penalty on the taxpayer. Once this three-year period has elapsed and the IRS is no longer permitted to examine your returns for a particular …show more content…
The only way that you can determine the amount of your profit is to determine the adjusted basis (adjusted purchase price plus improvements less depreciation allowable, such as with an office in the home) when your principal residence is ultimately sold. This means that you have to go back to the day when your property was purchased to determine all of the legitimate items that can be added to basis. If you deferred gain from the sale of a personal residence under the prior tax law, the basis must be adjusted. You must keep those records to prove the deferral and basis. In these cases, you would need to keep records from the purchase of your first home, all improvements, and tax records of the