Claiming a tax deduction for car registration fees depends on what the fees are technically for and how they're charged to you. In some cases—but not all—they fall into the category of personal property taxes. This makes at least a portion of them tax-deductible.
But you must itemize to claim the deduction, and itemizing isn't always in everyone's best interests after the passage of the Tax Cuts and Jobs Act (TCJA). The TCJA more or less doubled the standard deduction beginning in 2018 through 2025. It would take a good many itemized deductions to surpass your standard deduction and make itemizing worth it.
- Deductions for auto registrations are limited to the portion of the fee that's based on the vehicle's value and is considered to be a tax.
- Some states segregate this information on their billing statements. But you may need help to pin down the correct portion otherwise.
- You must itemize to claim this deduction, which means forgoing the standard deduction for your filing status, which often works out to be more.
- Self-employed persons enjoy a far wider range of auto deductions. They don't have to itemize to claim them.
You Can't Deduct the Whole Fee
Registration fees are based on a few factors in most states, including your vehicle's weight, age, and value. There's often an add-on fee for your license plate as well. Only the portion of the registration fee that's based on the value of your vehicle is deductible for federal tax purposes.
It doesn't matter if this portion of the fee isn't technically called a personal property tax on your billing statement. The IRS says that's exactly what it is regardless—a tax—at least under most circumstances.
Your total registration fee might be $175, but your actual tax deduction is limited to $60 if that includes $2 for each $1,000 of value and your car is worth $30,000, or $2 times 30. You can't claim the whole $175.
How to Determine Value
The matter can be further complicated because a car owner in California might be able to pinpoint the value-based portion of their registration fee much more easily than you could if you're living in New Jersey. Billing statements can vary a great deal by state, and some states provide more information than others.
California's billing statement calls its registration fee a "vehicle license fee." It's clearly set apart from the total. Some states provide a worksheet for figuring out the correct portion, while others leave taxpayers to their own devices to try to segregate the value-based portion on their own.
Contact your state's taxing authority if you're in doubt, or ask a local tax professional. It's a safe guess that they have some experience in pinning down their state's possibly elusive value-based number.
Rules Regarding Timing
The IRS imposes a couple of other rules for the deductibility of car registration fees. First, the value-based portion of your fee must be a tax, making it deductible if it's assessed annually.
This doesn't mean that you're only billed once a year. Some states break their due dates into semiannual or even quarterly payments. The key is that they're assessed or levied only once a year, regardless of the due dates for your payments. Your assessment date is when you receive your bill for the ensuing year.
You can only claim a deduction for what you've actually paid, so your deduction drops by half if the value-based portion of your bill is $60, and if $30 is due in November and $30 is due the following May. You can only claim the portion you paid in November's tax year. You'll eventually be able to claim both payments, but not on the same year's tax return.
You must also be personally responsible for paying the tax. This means that the car is registered in your name.
Itemizing vs. the Standard Deduction
It can be worth the trouble of claiming this deduction if you have a lot of itemized deductions, enough so that their total exceeds the value of the standard deduction available for your filing status. But this became more of a reach in 2018 with the passage of the TCJA.
Your standard deduction as a single taxpayer would be $12,950 for the tax year 2022, up from $12,550 in 2021. It will take a lot of itemized deductions to exceed these amounts. You can't both itemize and claim the standard deduction for your filing status, too. It's one or the other, so it makes more sense to take the option that reduces your taxable income the most.
The total of your itemized deductions might not be more than your standard deduction from 2018 through 2025, that's when the TCJA potentially expires if Congress doesn't renew its terms.
Tally up all the itemized deductions you're entitled to claim, then compare the total with the standard deduction for your filing status:
- Single and married filing separately: $12,550 in 2021, increasing to $12,950 in 2022
- Married filing jointly and qualifying widow(er)s: $25,100 in 2021, increasing to $25,900 in 2022
- Head of household: $18,800 in 2021, increasing to $19,400 in 2022
Other itemized deductions that remain alive and well after the 2018 tax reform include charitable contributions, medical and dental expenses, and home mortgage interest. Personal property taxes are included under the umbrella of itemized state and local taxes.
The Itemized State and Local Tax Deduction
The TCJA made another big change as well. The state and local tax itemized deductions that these fees fall into are capped at $10,000. It's $5,000 if you're married and file a separate return.
So that $60 can't be claimed because it's over the $10,000 limit if you paid $10,000 in other qualifying taxes and your total comes out to $10,060 when you include the tax portion of your vehicle registration fee. All your state and local taxes would be deductible if they added up to $9,060 because it comes in under the cap.
How to Claim the Deduction
You must enter all your claimed itemized deductions on Schedule A if your total itemized deductions amount to more than the standard deduction for your filing status. You must then submit Schedule A with your tax return.
Personal property taxes go on line 5c of Schedule A. The total of your itemized deductions on the schedule is then entered on line 12a of the 2021 Form 1040, which you'll file in tax season 2022, in lieu of the standard deduction.
If You're Self-Employed
You can skip itemizing to claim your car registration fees if you're self-employed. You're not limited to the portion that represents a percentage of your vehicle's value in this case, either. But you're most likely limited to a percentage of the fee all the same.
You can claim auto-related business expenses on Schedule C, the Profit or Loss From Business tax form that determines taxable business income for those who are self-employed or independent contractors. But you're limited to a deduction equaling the percentage of miles you drove your car for business purposes rather than personal reasons.
You might have driven 18,000 miles during the tax year, but you could only claim 33% of your overall qualifying auto expenses on Schedule A if you drove 6,000 of those miles for business purposes because 33% of the total 18,000 miles works out to 6,000 miles.
Deductible auto expenses for the self-employed also include fuel, maintenance, oil, tires, repairs, insurance, and depreciation. You have the option of deducting the standard mileage rate for the year instead, which is 58.5 cents per each business mile driven as of 2022, up from 56 cents a mile in 2021.
What vehicle expenses are tax deductible?
There are some other expenses that you can claim on your tax return in addition to vehicle registration. This includes mileage for medical purposes, moving expenses if you're in the military, charitable reasons, and business purposes. You can claim depreciation, gas, maintenance, insurance, registration fees, and lease payments if you're self-employed.
What documents do I need for itemized tax deductions?
Suppose you plan to file Schedule A for itemized deductions, which includes items like vehicle registration. Be sure that you have the proper documentation to support these claimed expenses. They can be in the form of receipts, official records, or tax bills. You'll need a collaborating record of you paying for these expenses, such as a bank or credit card statement.