 Deducting home remodeling sales tax costs
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 Dear
Tax Talk,
I purchased a home in February 2006 and hired a contractor to remodel several rooms. I purchased new appliances, granite countertops, sinks, faucets, light fixtures, etc., which were installed by the contractor. Are these items considered "building materials" that I can get a sales tax deduction for in the state of Texas? Thanks.
-- Heather
Dear Heather,
The sales tax deduction is alive
and well for 2006 thanks to Congress, even though it is not included as a deduction
line on Schedule A if you read the fine print. Fine print means navigating through
many IRS screens. According to Schedule
A instructions, Congress was considering law changes when the forms and instructions
went to print. So they suggest you go to www.irs.gov
and then click on More
Forms and Publication and then click on What's
Hot in Forms and Publications and then click on Individuals.
Then put on your eyeglasses and look for "State and Local General Sales Tax
Deduction" while scrolling down.
There was some confusion
from prior law as to when you can claim sales tax on major home improvements.
Publication 600 provides the following guidance: Sales tax
can be deducted on a home, including a mobile home or prefabricated home, or substantial
addition to or major renovation of a home, but only if the tax rate was the same
as the general sales tax rate and any of the following applies.
 |
Sales tax can be deducted if the following apply: |
|
|
| a. |
Your state or locality imposes a general sales tax directly on the sale of a home
or on the cost of a substantial addition or major renovation. |
| b. |
You purchased the materials to build a home or substantial addition or to perform
a major renovation and paid the sales tax directly. | | c. |
Under your state law, your contractor is considered your agent in the construction
of the home or substantial addition or the performance of a major renovation.
The contract must state that the contractor is authorized to act in your name
and must follow your directions on construction decisions. In this case, you will
be considered to have purchased any items subject to a sales tax and to have paid
the sales tax directly. | |
It
sounds like you fall into category "b"' preceding, but you may want
to check into what sales tax your contractor is billing you for, such as on drywall,
cement, etc., to see if it may be possible to claim the expense under category
"c" as well. To deduct your actual expenses for
specified items such as home improvements, vehicles, boats and planes (plus the
table amount for general purchases), enter the amount on Schedule A, line 5, and
enter the letters "ST" on the dotted line to the left of the line 5
entry space. To ask a question on Tax Talk, go to the "Ask
the Experts" page, and select "taxes" as the topic. |
