We built a new home, started in 2018 and finished in 2019. I did not claimed anything related to the build with our 2018 taxes since the home was not finished.
For 2019 taxes I will be. I know I can deduct the sales tax paid on building materials. We were our own contractor/builder, and we meet the criteria to deduct.
But which materials can I include? Obviously the basics, like wood, brick, cement, drywall, flooring... but what about shingles? metal roof? windows? insulation? cabinets? countertops? lighting fixtures? doors? plumbing fixtures? and other materials we purchased like the nails and similar items used or tools to build the framing (which my husband built himself)?
I guess it would be easier to ask: what is excluded from "building materials"?
Ok ... first you can only claim the sales tax in the year you paid them ... you cannot combine the 2018 & 2019 receipts and deduct them all on the 2019 return.
Next you must be able to itemize deductions to take this deduction at all. So if you will not have enough for the Sch A you can stop fretting now.
AND the section of the Sch A for the state income tax OR sales taxes + real estate tax is now capped at $10,000 ... so if your state income taxes + RE taxes have hit this cap the sales taxes are useless ... again stop now.
NOW if you can itemize deductions AND you have not hit the $10K cap yet let us talk about what a "building supply" is according to the IRS publication 600:
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.
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.
You purchased the materials to build a home or substantial addition or to perform a major renovation and paid the sales tax directly.
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.
Can I deduct the sales tax on home renovation or construction?
Yes, if all of these conditions apply:
- You're itemizing;
- You're taking the sales tax deduction, as opposed to the state/local income tax deduction;
- The tax rate is equal to your state's general sales tax rate; and
- You (or your contractor acting as your agent) must have purchased the building materials and paid the tax.
What if the new construction is in a different state? Our new home is being constructed in TN, we live in MD. We itemize, have not hit the $10k in MD. TN as a 9.75% sales tax and I have over $7k in sales tax for items I paid for outside of the construction contract (over budget) and have receipts showing the taxed amount. May I deduct those? (Can the $10k be 'split', and will it affect my MD tax return). Certificate of Occupancy was issued 12/20/19.
If you meet the qualifications outlined in Critter's excellent narration, you can deduct the expenses.
I am not sure what is mean by the $10,000 being 'split'.
Maryland itemized deductions begin with federal itemized deductions from line 17, Schedule A (form 1040) and only reduces the federal itemized deductions by the state and local income taxes paid.
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