If you live in Utah, you have several tax obligations to the state. One type of tax that often gets overlooked is the vehicle personal property tax. To register a vehicle, you must pay taxes on it to Utah, which in turn uses that money to fund projects like road upkeep, installing traffic lights and salaries for police officers. While you can't get out of paying the tax, you can use your payment to take a little off your federal tax return.
Utah Vehicle Property Tax
Like most states, Utah levies a tax on personal property. This is defined as any movable, man-made property, such as your vehicle. The taxes you pay on your state-registered vehicle in Utah is based on the age and perceived value of the vehicle. The tax ranges between $10 to $125 depending on the type of vehicle and its age. You pay the taxes to the Utah Department of Motor Vehicles (DMV) at the time of your vehicle registration.
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IRS Property Tax Deduction
When you file your federal income tax return with the Internal Revenue Service (IRS), you can deduct taxes you've paid to your resident state, including personal property taxes on your vehicle. The idea behind the deduction is that you shouldn't have to pay federal income on taxes on money you used to pay taxes to another entity. It doesn't put the money back in your pocket, but it saves you a few bucks off your tax return.
The tax you pay on your state-registered vehicle in Utah is based on the age and perceived value of the vehicle.
Deduction Versus Credit
Many taxpayers confuse the property tax deduction with a tax credit. This is a deduction, not a credit. A deduction is an amount you can subtract from your taxable income. A credit is something you can add to your owed taxes. The impact of a deduction is smaller than a credit. For example, if you paid $100 in Utah property taxes, you can deduct it from your taxable income of $10,000 and now pay a percentage of $9,900 in taxes. On the other hand, if you owed $30 to the federal government but got a credit for that $100, you'd end up with a $70 refund instead.
If you'd like to deduct your Utah vehicle property taxes from your federal income tax return, you must itemize your tax deductions. This means filing a Schedule A form in addition to your 1040. Your property taxes for the year go on line 8, and the amount you paid next to it. Finish filling out the form to determine your total itemized deductions; it will include those vehicle property taxes.