There are ways to deduct sales tax on home repairs.
There are a number of different ways that may allow you to deduct the sales tax that you spend on repairs. Which one will work for you depends on the nature of the repair, the way that you file your taxes, and whether the home is your residence or is an investment property.
Types of Repairs
The first thing to consider is whether you are undergoing a repair or a capital expenditure. The line between the two is a bit blurry, but if you are doing something which adds on to the value of the building or which has a useful life of more than a year, it most likely is a capital expenditure. Some examples of capital expenditures are redoing a kitchen, replacing your roof, replacing a water heater or re-plumbing your entire house. Repairs would include fixing burst pipes, changing light bulbs, putting a new door on a broken cabinet and the like. Items which are repairs to your personal residence are not tax deductible, limiting your ability to deduct the sales tax that you spent on them.
Adjusting Cost Basis
If the "repairs" that you made to your home fit the qualification of capital expenditures, you can choose to add them, including their accompanying sales tax, to the cost basis of your home. Although most people do not have to pay tax when they sell their homes, if you have a very large gain, you will have to pay capital gains tax on a portion of the gain that you realize when you sell your home. By adding the cost of your repairs to your home's price, you reduce the amount of gain on which you have to pay tax.
Itemizing Sales Tax
One way to directly deduct the sales tax that you pay on your home's repairs is if you itemize your deductions, and choose to deduct the sales tax you paid in a given year instead of deducting the state income tax that you paid. If you are one of these taxpayers, you can deduct the sales tax that you pay on anything, including your home's repairs.
Investment Homes
Finally, if the home you are repairing is an investment property as opposed to your personal residence, you can deduct your entire repair cost from your rental income, including all of the sales tax you have paid. As with all of your other investment property expenses, report the repair costs and their sales tax on Schedule E in the line for "Repairs," which, in the 2009 tax year, was line 19 of the form.
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