Hmm, could be interesting digging up the HUD from 2006. What kinds of significant things don't count towards the basis? Kind of unfortunate because I was young and relatively foolish and had no idea I was going to rent it out. So, my bookkeeping on these types of things is going to spotty. I did make probably 20K worth of improvements to the property before we started renting it out. I might be able to dig up receipts for some of this stuff but its going to be tough. If I can't find receipts am I SOL in factoring this in to the basis? If I have pictures of it from when I bought and when I sell it that clearly show the improvements, is this not good enough with my reasonably good estimate of what it cost not good enough?
I can see how renting it forever simplifies things. But we're roughly cash flow neutral and don't like being landlords, so we really just need to exit now that the price has bounced back and are no longer underwater. The math becomes even worse once we start taking the capital gains tax hit which is why I'm trying to do these calculations. If my tax return says I'm taking 5500 depreciation a year, @ 15%, that about 68.75 / mo we loose to this once we cross the threshold.
Yeah, it sounds like you probably should get out. I too became a landlord initially by accident and need, but I had wanted to do it for a long time and it turned into a series of investments that each worked out better than the last. If you're not making money and you don't enjoy it, cut it off and put your funds into things that work better for you.
You will only need receipts if you are audited for the year you sell. That said, I strongly suggest pursuing all avenues to reconstruct your records as well as possible, simply for completeness. I often short-change myself when I guess, because little things add up to large amounts. Be very careful to differentiate repairs and improvements. Replacing shingles is a repair (a deductible expense in that year); replacing a roof is an improvement (it adds value and it depreciates on the same schedule as the home itself, but with a different start date). Any improvements done before placing the rental in service should be added to the initial cost basis, adding to depreciation.
***NOTE***
If you find that you didn't start with the full cost basis for depreciation, you should adjust it based on the improvements, which will also increase your allowed depreciation (starting when the home was placed in service as a rental). The IRS says to use the total depreciation you
should have claimed (not what you did claim) when calculating capital gains, so check this ASAP and make sure you claim the full amount going forward. Any differential there (for past years) is lost unless you go back and amend the returns.
As far as what is/isn't added to basis: I don't maintain full knowledge of it, because I so rarely need to know. This year I went line by line and Googled every single one that I wasn't sure about :D
If you don't have your HUD-1, the venue where you closed should have an archive copy, or the bank might.