Annual car registration fees may be deductible on your federal income taxes, but only under certain circumstances.
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- The portion of the registration fee that is charged based on the vehicle's value - as opposed to its size, age, or other characteristics - can generally be claimed as a deduction.
- If part of your registration is indeed deductible, you must itemize your deductions to claim it, rather than using the standard deduction.
Every state has its own way of calculating the registration fee on a vehicle, and those calculations typically take several factors into account. For example, say your annual car registration fee is based on a formula that charges:
- $2 per 100 pounds of vehicle weight,
- $1 per $1,000 of value,
- a flat $10 for license plate tabs, and
- $35 in other taxes and charges.
If you had a 4,200-pound vehicle with a value estimated by the state at $25,000, then your fee would be $154.
- (4,200-pound vehicle weight ÷ 100) x $2 = $84
- ($25,000 vehicle value ÷ $1,000) x $1 = $25
- $84 weight fee + $25 value fee + $10 license plate tabs + $35 taxes and charges = $154 total fee
Of that $154, only $25 would be an itemized deduction, because that's the only portion based on the actual value of the vehicle.
To be deductible, a value-based auto registration fee must also be assessed on an annual basis. What matters here is the frequency with which the tax is charged to you, not the frequency with which it's actually collected. A state could collect half of the fee every six months, for example, or allow you to pay two years' worth of fees at a time, but you can still take a deduction as long as the fees are assessed on a per-year basis.
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Taking the deduction
To deduct the value-based portion of your registration fee, you must itemize your deductions using IRS Form Schedule A.
- Car fees go on the line for "state and local personal property taxes."
- Note that your state might not specifically refer to the fee as a personal property tax.
- Nevertheless, if the fee is value-based and assessed on a yearly basis, the IRS considers it a deductible personal property tax.
Identifying value-based portion
Depending on your state, it might not be apparent whether a portion of your car registration is value-based or how to identify what portion of the fee qualifies for the deductions.
- In California, for instance, the value-based portion is identified on car owners' billing statements as a "vehicle license fee" and is specifically labeled as tax-deductible.
- In Iowa, the state provides a worksheet for determining the deduction based on information from the car registration document.
- In Texas, on the other hand, no portion of the registration fee is based on car value, so you can't deduct anything.
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