Throughout the year, individuals compile statements and receipts to include in their annual tax returns to maximize credits and deductions on their taxes. Car expenses, whether business or personal, can provide some tax savings. Annual vehicle registration or renewal taxes may be eligible as an itemized personal property deduction on federal and state returns.
Types of Tax Deductions
Individuals can itemize tax deductions on their annual federal and state returns. Categories for tax deductions include business expenses, charitable contributions and personal property expenses. Expenses for a company car, sales tax for a new car and the value of a donated vehicle are reported on Schedules C and A. The annual registration or renewal fee for a vehicle can be categorized as personal property tax for federal tax reporting based on specific criteria. If the annual vehicle fee meets the criteria for a federal property tax deduction, individuals should check whether it is also a state deduction.
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Under Internal Revenue Service (IRS) guidelines, personal property tax is deductible if it is a state or local tax that is charged on personal property annually and based only on the personal property's value. The IRS uses the example of a yearly motor vehicle registration fee that includes the value of the car to calculate the annual tax. The charge based on the value of the car is the deductible amount.
Individuals filing itemized taxes report motor vehicle tax deductions on Schedule A. According to Kiplinger, "Any fee you pay to register your vehicle is deductible on Schedule A as a personal property tax if the fee is based on a percentage of the vehicle's value." States such as California and Minnesota calculate a portion of a vehicle's value as a tax or fee, which falls under the criterion for a personal property tax deduction. Other states, such as Illinois, charge a flat fee for vehicle registration and renewal so these fees cannot be considered personal property tax deductions. State tax returns use calculations from federal forms so a federal deduction may be carried over to the corresponding state form.
Finding the Deductible Amount
Some states that accept automobile registration or renewal fees as itemized deductions on state income taxes specify the allowable amount on the annual renewal form and provide a resource for owners to check the allowable amount for a specific car. For example, the website for the Nevada DMV offers a web page for owners to enter their car's license plate and owner name to see the applicable service fees and taxes for tax returns.
- Kiplinger: Deductions for Cars and Other Items You Own
- Minnesota Revenue: Deducting Vehicle License Fees on Federal Schedule A
- Internal Revenue Service: Topic 510 Business Use of a Car
- California Franchise Tax Board: How Much Can I Deduct for Vehicle License Fees?
- Tax Slayer: What Personal Property Taxes Qualifies for a Deduction?
- Unofficial Guide to the DMV: Register Car in Illinois
- Nevada Department of Motor Vehicles: Sales Tax Payment History
- Internal Revenue Service: Publication 17 Your Federal Income Tax