Sale Tax Deduction

[Donanita]

Is there a limit on how much sales tax you can deduct if you use your receipts. Client is call and ask about using sales tax. He build a home last year and bought all the materials but had contractors do the work.Cost of home around 250K. Haven't see a total but our sale tax rates are 8.6%. Just wondering if there is a limit on how much can be deducted.
Client is not in the business of building houses, this was just their personal home

[WhiteOleander]

If the client actually purchased the materials and paid the tax, he can take the deduction. But, if the builder purchased the materials, the client cannot take the deduction. We had an audit on this issue last year. The t/p had to produce the receipts to show he paid the tax. He had claimed a huge amount. About 15,000. So, the IRS wanted to see the evidence. He passed.

[David1980]

Also you need to make sure the sales tax paid was the same tax rate as the general sales tax rate. If he bought the materials himself that probably isn't a problem.

[BHoffman]

Unbelievable that this question came up! I am getting ready to tackle this same thing and was about to ask if the sales tax would be considered a basis item for home remodeling and not eligible for the ST deduction. This is uncanny!

WhiteOleander - thank you for sharing that info. I've already told the client to make sure the receipts are in good order because IRS might want to see them.

In AZ, general contractors must remit sales tax on part of their labor-only income. They generally give the customer a flat bid, but it must be that some of that amount is actually sales tax paid by the customer. I can factor that amount out, but wonder since it doesn't show up on the invoice if the IRS auditor will disallow it. I can cite the AZ state statutes and will keep my calc. worksheet.

Whaddya think? Calculate the factored sales tax and take it or not?