Construction Sales Tax

Today TaxMama® hears from Yimmy in the TaxQuips Forum, who wants to know.  “I moved into a newly constructed home in Oct.
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2012. Are the sales taxes paid on the construction materials used in building the home tax deductible?
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The home is in Georgia.”

Dear Yimmy,

We get an answer from  Mike Reed, EA in California.

Congrats on finishing such big project. Yes, you can deduct the amount in the IRS sales tax table for Georgia, for your family size and income PLUS the sales tax paid on big ticket items. A home sounds like a  big ticket.
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IRS Publication 600 (which has not been updated since 2006??) states that you can consider a home as a big-ticket item if any of the following apply:

1.) 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.

2.) You purchased the materials to build a home or substantial addition or to perform a major renovation and paid the sales tax directly.

3.) 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.
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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.

After adding up all the sales tax paid plus the amount in the sales tax table, will that be more than the State Income tax you paid in GA for the year? If so, use the sales tax deduction, if not use the state income tax deduction.

TaxMama® adds, if it turns out that you do qualify to deduct the sales taxes, REDUCE the basis of the house by the amount of the sales taxes you deduct.

And remember, you can find answers to all kinds of questions about sales taxes, and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

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