The cost of home improvements can take a bite out of your annual budget, especially if the improvements are substantial. The Internal Revenue Service does not allow a deduction specifically for the cost of the home improvements, but you can write off the sales taxes from those improvements on your federal income taxes.
Deduction Value
You can claim both the state sales taxes and local sales taxes on your home improvements as part of the sales tax income deduction. Your sales tax deduction is not limited to your home improvements; you can also include sales taxes paid on any other items during the year that you can document with receipts. Keeping receipts helps you maximize your sales tax deduction.
Warning
If you claim a deduction for sales taxes paid on your home improvements, you cannot claim an income tax deduction for your state and local income taxes paid. The IRS forces taxpayers to claim only one. Therefore, if your state and local income tax deduction exceeds your state and local sales tax deduction, you should not claim your sales taxes on home improvements on your income tax return. Additionally, the deduction for sales taxes is an itemized deduction, meaning you become ineligible to claim the standard deduction.
Tax Filing
To claim a deduction for your sales taxes paid on your home improvements, file your income taxes with IRS Form 1040 and elect to itemize your deductions. To itemize, you have to attach Schedule A. On Schedule A, enter your sales taxes paid on line 5. To notify the IRS you are claiming state and local sales taxes, not income taxes, you have to check box 5b, "General sales taxes." When claiming this deduction, you can also include any other sales taxes paid during the year.
Record Keeping
Though you do not have to submit all of your receipts with your federal income taxes, you should keep careful records of your sales taxes paid, both on your home improvements and on any other purchases throughout the year. If your income tax return gets audited, you will have to prove the amount of your deduction with the receipts showing the amount of sales taxes paid.
Tags: sales taxes, taxes paid, sales taxes paid, home improvements, income taxes, your home, your home improvements