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February 24, 2025
Question

Can I deduct sales taxes I paid for labor and materials for a new water well; a new drain field; and related plumbing expenses?

  • February 24, 2025
  • 2 replies
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    2 replies

    February 24, 2025

    Yes, you can include those sales tax costs in your itemized deductions, but the income tax deduction might be lower.  Here's how you can navigate to the sales tax entry in TurboTax Online:

     

    1. Navigate to Federal > Deductions & Credits > Estimates and Other Taxes Paid > Sales Tax > Start or Revisit

     

    If you're itemizing, you must choose between deducting your state and local income taxes or your state and local sales taxes. You can't claim both.

     

     

    February 24, 2025

    If you are using the actual expense method, you can deduct all general sales tax you pay.

     

    If you are using the IRS optional allowance method, the only items you can add to the standard allowance are the purchase of a motor vehicle, airplane, a home, or addition or "substantial renovation" to your home.  A new well on the same property as your home could count as a "substantial renovation".  There is no specific guidance but in other areas I have seen 10% of the property value be the cutoff for a substantial renovation.

     

    Also, did you even pay sales tax?  In New York where I used to live, home improvements were exempt from sales tax, so the contractor would not have added it to their invoices for labor or materials.

     

    See the instructions for schedule A.

    https://www.irs.gov/instructions/i1040sca