Many home buyers jumped into the hot real estate market or refinanced with rock bottom interest rates this year. If you were in either of these categories, you may wonder what to do with the mound of paperwork these transactions generate. Here are some tips on sorting through the documents.

What you don’t need to keep

When entering into a new home loan or refinance, you may receive many estimates. At the end of the process, once you have received final closing documents and your loan is done, you can toss these estimates.

Most mortgage companies offer a “paperless” option once your loan is established. If you pay your mortgage online, there will be a digital record of payments and fees. You don’t need to keep paper copies of statements.

How long do you need to keep final closing documents?

According to Consumer Reports, the closing costs noted on final documents when you sell or refinance can be used to increase the tax basis you’ll use to calculate whether you owe any capital gains tax. (The higher your basis, the lower your capital gains tax might be.) The IRS allows deductions for some of these costs and you will want to have this information on hand at tax time.

You also should keep records of any major home improvements, such as a remodel or addition, and records of expenses incurred while buying and selling, such as legal fees and agent commissions, to calculate capital gains. You could be required to produce records that prove income, deductions or credit claimed.

You should keep the final closing documents for seven years, because that’s how long the Internal Revenue Service has to audit you.

Other paperwork associated with the loan, such as refinancing agreements, should be kept for at least three years, although some real estate professionals recommend keeping this paperwork for up to 10 years, or while the loan is still active. That’s because you might want to refer to it if your monthly mortgage statements seem inaccurate or if there’s a sudden, unexpected change in your monthly interest rate, for instance.

A few other documents to keep

There are certain documents when you purchase or refinance a property, such as the loan contract, that you should keep for the life of the loan.

A deed to the home should be kept for as long as you own the home, plus three years.

It is also helpful to keep all appraisals done on the property while you own it. These are helpful in a refinance if the document is less than a year old, but can also be interesting to see the notes and what values have changed on the property over time.

In addition to closing documents, keep records of what you spent on improvements. This may come in handy when you’re trying to prove the value of your home to potential buyers, as well as helping with capital gains when it comes time to sell. After you sell the house, keep the documents for three years.

Caveat to record keeping

If you failed to file a tax return in any given year, there is no statute of limitations as far as the IRS is concerned. In that case, the IRS recommends you keep documents related loans, and buying and selling property indefinitely.

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