In Colorado, vehicle registration fees and taxes support improvement and maintenance expenses for roads and transportation infrastructure throughout the state. Colorado vehicle registration costs include sales tax, ownership tax and license fees. Ownership tax and sales tax charged for new vehicle sales may be tax-deductible for certain taxpayers on their federal tax returns. Ownership and sales taxes are not deductible on Colorado tax returns.
Ownership tax is a personal property tax based on a vehicle's manufacturer's suggested retail price (MSRP). The taxable value of your car is calculated by multiplying the MSRP of your vehicle by 75 percent for trucks and trailers or 85 percent for passenger vehicles and motorcycles. Therefore, a passenger car with an MSRP of $20,000 would have a taxable value of $17,000. This amount is then multiplied by the vehicle's tax rate, which is determined by the age of the vehicle. The tax rates range from a small flat fee to 2.1 percent of a vehicle's taxable value depending on the age of the vehicle. A 3-year-old car with a taxable value of $17,000 would have an ownership tax of $204; that is the amount deductible from your federal tax return.
Ownership Tax Deduction
Colorado taxpayers that want to deduct the ownership tax on their federal income tax returns must itemize deductions. The Internal Revenue Service provides taxpayers the choice to itemize deductions or to take the standard deduction. Both the standard and itemized deductions are dollar amounts that reduce a taxpayers' taxable income, which in turn can reduce the amount of tax owed. In 2018, the standard deduction for a single taxpayer with no dependents is $12,000. Therefore, a taxpayer that wanted to deduct Colorado car ownership tax would need to have qualified deductible expenses, such as mortgage interest, medical and dental expenses, and tuition and fee expenses in excess of $12,000 for it to make financial sense to itemize deductions.
Colorado residents that purchase a new vehicle during the year may also be able to deduct some or all of the sales tax that was paid on their federal tax returns. The sales tax deduction can be taken by taxpayers that have chosen to take the standard deduction and are not itemizing deductions. The Colorado sales tax in 2018 is 2.9 percent, but local taxes may apply. For example, Denver has a 3.65 sales tax in addition to the state sales tax. Purchasers statewide must pay an additional Regional Transportation Authority tax, which varies by jurisdiction.
Claiming the Deduction
Taxpayers looking to claim the ownership tax deduction would itemize the deduction on a Schedule A on IRS Form 1040. The Colorado ownership tax charged is found on the vehicle registration receipt under the section labeled "OWN. TAX". Colorado taxpayers who are taking the standard deduction, and wish to deduct new vehicle sales taxes can do so on a Schedule L form. The Schedule L can be used with both the 1040 and 1040A tax forms.
- U.S. Internal Revenue Service: Publication 17, Your Federal Income Tax
- Boulder County; Colorado's Motor Vehicle Registration Fees Increase Beginning July 1, 2009; June 2009
- Tax Foundation: 2018 tax brackets
- Denver Motor Vehicle: Fees & Sales Tax
- IRS.gov: Topic 551 -- Standard Deduction
- IRS.gov: Schedule A (Form 1040)
- IRS.gov: Schedule L (Form 1040A or 1040)