As a North Carolina resident who owns a motor vehicle, you have different options for taking income deductions with taxes assessed against your property. Property and sales taxes charged against motor vehicles are eligible for tax deductions by you if you file a 1040 tax return. These can be itemized on your schedule A.
Personal Property Tax Deduction
The U.S. Internal Revenue Service allows for income deductions of personal property tax on tax returns. The tax must be charged annually on personal property and based on the value of the property. If it is partially based on value along with another criteria, the value-based portion alone is tax deductible.
North Carolina Motor Vehicle Tax
When you own a motor vehicle in North Carolina, you must register it with the North Carolina Department of Motor Vehicles. Through this registration, your vehicle is also registered with your home county. Your motor vehicle is annually appraised for true monetary value and then taxed by your county. The tax is based on the appraised value found and due by the vehicle's registration anniversary date. This process meets eligibility for tax deduction on U.S. tax returns.
Motor Vehicle Sales Tax
The sales tax you pay when you buy a motor vehicle can be deducted on itemized deductions as of September 2011. Since 2005, the ability to choose between a state income tax or sales tax as a deduction has benefited North Carolina residents with reduced tax burdens. Although claiming state income tax will normally provide you with a better deduction, purchasing a high value car can increase the amount of sales tax you pay during the year and make the sales tax deduction more attractive to claim.
Both tax deductions can be taken on separate lines of the schedule A for the 1040 tax return. You should attach a copy of your annual property tax statement and/or sales receipt from your vehicle purchase. You may not deduct any fines or penalties assessed with your property tax obligation.
- U.S. Internal Revenue Service: Publication 17 (2010), Your Federal Income Tax
- North Carolina Department of Revenue: Types of Property To Be Taxed
- CBS News; Tax Cut Bill: A Guide to the Extensions, Cuts and Credits; John Nolen; December 2010
- Wake County Tax & Property Information: Vehicle Taxes
- U.S. Internal Revenue Service: Sales Tax Deduction Calculator