Do NOT Pay Sales Tax on Capital Improvements to Your Home!

Property tax are the worst f the taxes you can pay in retirement.

Reason for this is simple, you can do a lot to reduce if not eliminate income taxes. Maximize Social Security, move $ to Roth IRAs when you are in a low bracket, etc.

You can also minimize your sales tax by not eating out, growing your own food, driving to a tax free state, such as New Hampshire from Maine, to buy your gear, etc.

Property tax though? Nope. Other than taking whatever homestead exemption they offer, there is nothing you can do.

So, keep a look-out for what your property tax rates are, as well as the value of your home in which you’re being charged. Take advantage of whatever options they offer too, homestead exemptions, age exemptions, etc.

You have a contractor quote you a price for replacing your floors. You notice there is a $900 fee for SALES TAX.

What do you do?

You tell him to pound sand.

Depending on the state you live, capital improvements are NOT subject to sales tax. And what is a capital improvmeent?

Well, let’s just use the New York state definition.
“A capital improvement is an addition or alteration to real property that:
• substantially adds to the value of the real property, or
appreciably prolongs the useful life of the real property;
• becomes part of the real property or is permanently
affixed to the real property so that removal would cause
material damage to the property or article itself; and
• is intended to become a permanent installation.”

What does that include? Well, pretty much anything that improves your home. Ripping out carpet and installing hardwood floors. New HVAC. New deck, roof. Etc.

You name it, if it is improving your home, permanently it’s a capital improvement.

Sanding and painting your cabinets? No. Repacing the cabinets. Yes.

Below I give you links to the NY and NJ docs that specifically state what are considered capital improvements.

I also link you to the Popular Mechanics podcast from which I learned this.

Remember, the material used to make the improvements, the flooring itself MAY be subject to sales tax. It’s the labor, i.e., the service, that is not.

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