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Deducting sales tax on new home purchase in lieu of state income tax

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K

knopfler3

Junior Member
Hi,

I am a resident of WA state. As a state with no personal income tax, I am allowed to deduct sales tax payments under my 2005 itemized deductions in lieu of state income tax, under the American Job Creation Act.

We bought (actually signed a contract for building) a new house in Aug 2005, for $301K. I understand that the sales tax on the house purchase is tax deductible, in addition to the standard table lookup value.

My question is: how much of the tax is deductible? The total sales tax is in excess of $20,000- is that entire amount deductible? The IRS and the Wash State Dept of Revenue have examples of automobile purchases, where the $1600 tax on a $20,000 automobile would be fully deductible. It's hard for me to believe that I have a $20,000 deduction, and save $3000 on my tax bill!!!

Second question- is the sales tax based on the purchase value of the house? Or the identified cost of building materials (excl. labor and contractor fee)?

I know WA is one of several states w/o income tax that qualify for this deduction, so I'm hoping someone out there is knowledgeable. TaxACT (my software) has no been no help!

Thanks in advance!!
 


LdiJ

LdiJ

Senior Member
knopfler3 said:
Hi,

I am a resident of WA state. As a state with no personal income tax, I am allowed to deduct sales tax payments under my 2005 itemized deductions in lieu of state income tax, under the American Job Creation Act.

We bought (actually signed a contract for building) a new house in Aug 2005, for $301K. I understand that the sales tax on the house purchase is tax deductible, in addition to the standard table lookup value.

My question is: how much of the tax is deductible? The total sales tax is in excess of $20,000- is that entire amount deductible? The IRS and the Wash State Dept of Revenue have examples of automobile purchases, where the $1600 tax on a $20,000 automobile would be fully deductible. It's hard for me to believe that I have a $20,000 deduction, and save $3000 on my tax bill!!!

Second question- is the sales tax based on the purchase value of the house? Or the identified cost of building materials (excl. labor and contractor fee)?

I know WA is one of several states w/o income tax that qualify for this deduction, so I'm hoping someone out there is knowledgeable. TaxACT (my software) has no been no help!

Thanks in advance!!
Click to expand...
The sales tax deduction on schedule A applies to ANY sales tax paid. So yes, if you actually paid 20k of sales tax on your home purchase, you get to deduct that.

I am not familiar however with VA sales taxes, however you need to be certain that what you paid was actually sales tax. In most states there is no sales tax on the purchase of real estate.....so that one seems a bit odd to me.
 
S

Snipes5

Senior Member
There is no sales tax on the purchase of real estate in WA. If you purchased BUILDING MATERIALS, you can claim the sales tax on those, and add it to the amount available from the sales tax table.

If you put $20,000 sales tax on your return for ANY reason, you will be audited unless your income is high enough that you could have actually spent that much in tax over the ordinary course of your life.

Snipes
 
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