@jason-sears wrote:
I am so sorry! My question regarding what is deductible is for state sales tax. I am attempting to calculate the sales tax paid in 2020. Does this make a difference?
For the sales tax deduction, you deduct the sales tax you actually paid if it was at the general sales tax rate. that would include on materials and labor, if sales tax is charged on those services. If charged a higher rate, you can only deduct the normal rate. (For example, if the general sales tax rate was 5% but building materials are charged 6%, you could only deduct 5%. This would be a pretty rare situation, though. It's more likely to apply to a luxury sales tax surcharge for expensive vehicles in some states.)
An improvement is something that increases the value of the home or extends its useful life or the life of a major subsystem. Improvements must be permanently attached to the real property (land or real estate). However, an improvement is not a repair, which maintains the property in as-was condition. For example, if you built an addition and re-roofed the entire house, the entire cost is an improvement because even the part of the roof that was over the existing home counts as "extending the useful life of a major subsystem". However, if you installed a roof over the addition and patched a hole over the main home, the part of the cost represented by the patch is not an improvement because it is a repair and doesn't extend the life of the roof system or make the home more valuable. Other property upgrades, like electrical upgrades, would also be improvements to the whole house and you don't have to split the cost to just the addition. Items that would normally be considered repairs (like painting) can be counted as improvements when performed as part of an overall improvement job (again, painting the new addition is part of the improvement, but painting the rest of the house at the same time is not part of the improvement.)
However, if audited, you will need to show proof. And, some states don't charge sales tax on materials sold to contractors if it will be used for capital improvements, so you will need proof that you actually paid sales tax, either directly to the supplier of the materials, or indirectly through the contractors on your invoice. It may not be enough at audit if you simply claim that 5% (or whatever percent is appropriate for your area) of your cost was sales tax.
