I made installment payments throughout the year 2021, can I spread sales tax proportionally to those payments?

[JohnFremont]

The listing of all costs in the purchase contract shows total state sales tax.  Can I spread that sales tax over the year 2021 proportionally with the installment payments?  The contract was signed in 2020 and I made the first payment in 2020.  The item purchased was an ADU (Accessory Dwelling Unit). 

[LeonardS · Accepted solution]

No, sales tax can not be spread out proportionally with your installment payments.  Sales tax can only be deducted as an expense in the year they are paid or added to the basis of capital items/equipment.

[JohnFremont]

Thanks for your reply.  If this is the case, then can I go to the seller and ask when the sales taxes were paid?  Is it assumed they were paid at time of signing the contract, or later as they spend money on materials?  Or is it the case that their sales tax shown on the sales contract is just not something I could ever deduct?

[HelenC12]

Please clarify. Is this ADU for personal use or will it be a business or a rental? Did you pay general sales tax on the ADU? Are the installments payments a mortgage (form 1098 Mortgage Interest)?

[JohnFremont]

The ADU is for personal use, but in the future it could be a rental.  Another existing building on the property will be a rental  The sales contract shows sales tax as "applicable sales tax", it is state + county sales tax.  This is not a mortgage loan.

[Cynthiad66]

Based on the additional information you provided, the answer provided by Leonard Smith is correct. "sales tax can not be spread out proportionally with your installment payments.  Sales tax can only be deducted as an expense in the year they are paid or added to the basis of capital items/equipment."   Also, it is when it is paid by you not the seller.  In other words, when you purchased the property and sales taxes are included in the sale, it is considered paid by you on that date.

@JohnFremont

[JohnFremont]

Ok, thanks for your confirmation.  Not the answer I was hoping for but at least I can go ahead and finish my return knowing that I investigated all the possibilities to reduce my taxes.