RETENTION OF RECORDS - Records Relating to Property
Keep in mind that the tax consequences of a transaction that occurs in one year may depend on things that happened in earlier years—and that the period for which you should retain records must be measured from the year in which the tax consequences actually occur. This may be significant, for example, where you sell property that you bought years earlier.
For example, suppose you bought your home in 1986 for $100,000 and made $20,000 of capital improvements in 1993. To determine the tax consequences of the sale, it's necessary to know your basis (i.e., original cost plus later capital improvements). Thus, if you sell your home in 2010, and your return for that year is audited, you may have to produce records relating to the purchase in 1986 and the capital improvement in 1993 to be able to show what your basis is. Therefore, those records should be kept for at least six years after your 2010 return is filed instead of just six years after the transactions they relate to occurred. NEXT