Basis Tracking, Record Retention, and Audit Preparedness

Key Takeaways

• Cost basis = purchase price + closing costs + improvements − depreciation; errors create $1,500-$3,700+ in unnecessary tax per $10,000.
• Records must be retained until the property is sold AND the statute of limitations expires—potentially decades for 1031 chains.
• Digital storage with cloud backup is essential—physical records degrade and are lost in disasters.
• A well-organized audit-ready file per property turns audits into documentation exercises rather than crises.