A few years ago I represented a seller in the sale of an apartment. When I asked him if he had sold an apartment in the last four years he said no. This was an important piece of information necessary to ascertain if he was entitled to an exemption from capital gains tax. I prepared the report to the tax authorities and, based on the information I had gotten from my client, I applied for an exemption in his name.
Well, it turned out that he did not disclose to me the fact that he had sold an apartment two years before, at the same time he owned the apartment he was currently selling. This meant that he could not get an exemption from capital gains tax and he got hit with a huge bill for capital gains tax.
There are several types of expenses that can bring down the tax. These include legal expenses in the purchase and the sale, real estate agent fees in the purchase and the sale, renovation,s and interest paid on the mortgage.
I brought to the tax authorities all these receipts. However, my client did not have receipts for the renovations he did on the apartment. I advised my client to bring an appraiser to appraise the worth of the renovations. With this appraisal, together with the receipts I presented I was able to reduce the tax to zero.
The moral of the story is to always disclose to your real estate attorney all the facts as to your properties and past transactions, so that a correct assessment of the taxes to be paid in the new real estate transaction you are about to do can be made.
Keep all receipts connected to your real estate, no matter how far back they go. You never know when they will come in useful.