Snowbirds Must Keep Records When Selling a Second Home

If you’re a snowbird who owns a second home, keeping detailed records is one of the most important things you can do to reduce your tax bill when you sell. Many homeowners assume they can estimate improvement costs or rely on memory, but the IRS requires proper documentation. Without it, you could end up paying significantly more in taxes than necessary.

A recent Tax Court case shows exactly how costly poor recordkeeping can be.

A Real-Life Example: When Records Are Missing

Tibor Gyarmati, a Michigan resident, owned a vacation condo in Florida that he purchased in 1989 for $410,000. The 3,000-square-foot property was used as a family vacation home and was remodeled and furnished multiple times over the years.

In 1992, the condo suffered major damage from Hurricane Andrew. While insurance covered some repairs, it did not cover mold damage caused by water and humidity. This led to additional out-of-pocket costs for replacing drywall, flooring, wall coverings, and furniture.

Years later, Mr. Gyarmati sold the condo in 2015 for $775,000.

How the IRS Calculated the Taxable Gain

When you sell a second home, your taxable gain is generally calculated as:

• Sale price

• Minus your original purchase price

• Plus documented improvements

  
  

The IRS calculated Mr. Gyarmati’s gain at just under $290,000 based on:

• $775,000 sale price

• $410,000 original purchase price

• Limited, verifiable improvement costs

  
  

Mr. Gyarmati argued that his gain should be much lower. He claimed:

• About $95,000 in post-hurricane repairs and improvements

• Approximately $150,000 in additional remodeling over the years

• A loss on furniture he said was included in the sale

Why the IRS Rejected His Claims

The issue wasn’t whether he spent the money. The issue was whether he could prove it.

The Tax Court ultimately sided with the IRS because of poor documentation and inconsistent testimony.

1. Vague and Inconsistent Records

He could not clearly explain what improvements were made, when they were completed, or how much each project cost.

2. Receipts Didn’t Match the Property

Most of the invoices he provided showed items shipped to his Michigan home, not the Florida condo. He claimed the items were later transported, but had no proof.

3. Questionable Details

Several issues raised concerns:

• Some receipts were from 20 to 30 years before the sale

• The amount of furniture listed exceeded what could reasonably fit in the condo

• He could not confirm whether certain high-value items were actually in the property

  
  

4. No Clear Allocation for Furniture

He claimed part of the $775,000 sale included furniture, but there was no documentation showing how much of the price was for the condo versus the furnishings.

5. Failure to File Tax Returns

He also failed to file tax returns for 2014 and 2015. The IRS created a Substitute for Return, which typically results in a higher tax liability and fewer deductions.

The Outcome

Because Mr. Gyarmati could not support his claims with proper documentation, the Tax Court ruled in favor of the IRS. He was not allowed to include the additional costs in his basis, which resulted in a higher taxable gain.

What This Means for Snowbirds

This case is a clear reminder that good recordkeeping can directly impact how much you pay in taxes when selling a second home.

Here’s what you should do to protect yourself:

Keep All Improvement Records

Save receipts, invoices, contracts, and proof of payment for any upgrades or renovations. These increase your cost basis and reduce your taxable gain.

Document Where Items Are Used

If you purchase furniture or materials for a specific property, make sure records clearly show they were delivered to and used in that home.

Track Repairs After Storm Damage

If your property is damaged by a hurricane or other event, keep detailed records of:

• Insurance claims and payouts

• Repairs completed

• Costs not covered by insurance

  
  

Separate Real Estate and Personal Property

If you sell a furnished home, make sure the sales agreement clearly allocates value between the property and the furnishings.

File Your Tax Returns on Time

Failing to file can lead to the IRS preparing a return on your behalf, often resulting in higher taxes and missed deductions.

Final Thoughts

Whether you’re a snowbird or a full-time resident, the rules are the same. If you want to minimize taxes when selling a second home, you need clear, organized records to support your numbers.

Without proper documentation, even legitimate expenses may not count. And as this case shows, that can become very expensive.