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Q. I am building a home. The contractor pays the initial bills and then submits bills to me for reimbursement of actual costs. Can I deduct the sales taxes paid on these items on my 2007 tax return? J.R., via e-mail
A. Not as a business expense, because you’re not actually in the home-construction business. On the other hand, you may be able to deduct sales tax paid on personal items if the reimbursements don’t cover the tax. Due to a recent tax-law change, you can claim a state sales-tax deduction in lieu of deducting state income tax. The election is made on your personal 2007 return. (The availability of the special election expires after 2007, but it could be extended.) You can use a special IRS table if you don’t want to account for your actual costs incurred during the year.
Tip: If the reimbursements from the contractor cover the sales tax, you receive no tax benefit.