Is there a sales tax savings to buy cabinets, etc. via builder

farmhousegirlJuly 14, 2014

We are finalizing our contract. There are allowances for cabinets, counters, etc. and I don't think we will be using our builders cabinet source..(.they seem pretty limited and I have something else in mind. ) He said we can go anywhere to get the cabinets and they will install. Just wondering if it makes sense to pay the builder our money and then get back an 'allowance' to spend when we are going elsewhere anyway. It just seems to muddy the waters and too much money moving in different directions. Would it make sense to take out the allowances in the contract for things they are installing anyway just to make the process simpler? Or is there a sales tax savings if you go through the builder? Thanks

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If you are in a taxable state then someone pays them and while he may purchase using a resale number, he's selling to you and whether or not he breaks it out for you, you are being charged the tax.
The same for all the materials supplied by him.

    Bookmark   July 14, 2014 at 7:55PM
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The sales tax itself is tax deductible. There is a 'standard deduction' for sales tax, but there is a provision for spending more on sales tax than normal- items such as a new car, or a lot of materials for building a house. I keep a spreadsheet for our build, and record all of the sales taxes for this purpose.

    Bookmark   July 15, 2014 at 5:51AM
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MushCreek, so when you pay your income taxes the following year, you use this standard deduction?

    Bookmark   July 15, 2014 at 10:51AM
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You would use the standard sales tax deduction, plus the amount you spend on an unusually large purchase. We've been spending about $30K a year on taxed items just for the house alone, or nearly $2K more sales tax than a 'normal' family. If the house is being built by a builder, you'll spend a lot more than that in a year, but I am building by myself, so it is going to take about 3 years.

I am NOT a tax expert; I just follow the instructions in the software, so make sure for yourself, but I recommend saving all of your receipts. Hint- Keep a running spreadsheet, rather than doing it all at tax time. There are a LOT of receipts!

It really annoys me that there are no tax breaks for building 'green', other than geothermal. If I put my beautiful new windows in my old house, there is a deduction, but for a new house- no. I spent a lot of money so that my new house uses 1/3 of the energy that my old one did, and got NO tax breaks other than sales tax.

    Bookmark   July 15, 2014 at 11:58AM
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In general, how it works in a contract situation where the contractor is supplying the material, in his tax filing he list the total of the taxable material provided and writes a cheque to the taxing agency based upon that total. Which in turn becomes a deduction from his profits, in the calculation of the amount he then pays income tax upon.

For a complete clarification, contact your tax preparer.

Hopefully, not H&R block.

    Bookmark   July 15, 2014 at 1:00PM
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farmhousegirl -- my understanding is that for 2013 you can deduct either state income tax or state sales tax (but not both) on your federal return.

Here is a link that might be useful: deductions for state taxes

    Bookmark   July 15, 2014 at 3:36PM
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Wouldn't a new kitchen be considered a "capital improvement" and you would pay no sales tax if you are purchasing it installed (I know it would be that way in NY)? And if you purchase the cabinets flat out yourself and then have someone do install only you would pay the sales tax at the time of your purchase.

    Bookmark   July 15, 2014 at 3:51PM
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