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, and this makes at least a portion of them tax deductible.
You must itemize to claim the deduction, however, and itemizing isn’t always in everyone’s best interests after the passage of the Tax Cuts and Jobs Act (TCJA). The TCJA essentially doubled the standard deduction beginning in 2018 and through 2025, so it would take a somewhat significant total of itemized deductions to surpass your standard deduction and make itemizing worth your while.
You Can’t Deduct the Whole Fee
Registration fees are calculated based on several different 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.
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.
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.
How To Determine Value
The situation 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 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,” and 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 other rules for deductibility of car registration fees. First, the value-based portion of your fee is only considered a tax, making it deductible, if it’s assessed annually.
This doesn’t necessarily 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 typically when you receive your bill for the ensuing year.
You can only claim a deduction for what you’ve actually paid, so if the value-based portion of your bill is $60, and if $30 is due in November and $30 is due the following May, your deduction drops by half. You can only claim the portion you actually paid in November’s tax year. You’ll eventually be able to claim both payment, but not on the same year’s tax return.
You must also be personally responsible for paying the tax. This generally 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 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 a rather significant $12,400 for tax year 2020, increasing to $12,550 in 2021. It would take a fair number of itemized deductions to exceed these amounts.
The total of your itemized deductions might not be more than your standard deduction from 2018 through 2025, when the TCJA potentially expires.
You can’t both itemize and claim the standard deduction for your filing status. It’s one or the other, so it obviously makes more sense to take the option that reduces your taxable income the most.
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: $12,400 in 2020, increasing to $12,550 in 2021
- Married filing jointly and qualifying widow(er)s: $24,800 in 2020, increasing to $25,100 in 2021
- Head of household: $18,350 in 2020, increasing to $18,800 in 2020
Other itemized deductions that remain alive and well after 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 important change as well. The state and local tax itemized deduction that these fees fall into are capped at $10,000, and it’s just $5,000 if you’re married and file a separate return.
So, 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, that $60 can’t be claimed, because it’s over the $10,000 limit. All your state and local taxes would be deductible, however, if they added up to $9,060, because this total 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 and you decide to itemize. You must then submit Schedule A with your tax return.
If You’re Self-Employed
You can skip itemizing to claim your car registration fees if you’re self-employed, and you’re not limited to the portion that represents a percentage of your vehicle’s value in this case. But you’re most likely limited to just 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. You're limited to a deduction equaling the percentage of miles you drove your car for business purposes as opposed to personal reasons, however.
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.
Frequently Asked Questions (FAQs)
What vehicle expenses are tax deductible?
In addition to vehicle registration, there are some other expenses that you can claim on your taxes. This includes use for medical purposes, moving expenses (if you're in the military), charitable reasons, and business purposes. If you are self employed or own your own business, you can claim depreciation, gas, maintenance, insurance, registration fees, and lease payments.
What documents do I need for itemized tax deductions?
Suppose you plan on filing a list of itemized deductions, including items like vehicle registration and gas. In that case, you'll need to make sure you have the proper documentation to support these claimed expenses. This can be in the form of receipts, official records, or tax bills, and a collaborating record of you paying for these expenses.