Is Your Vehicle Registration Tax Deductible?
Deductibility depends on several factors.
Claiming a tax deduction for car registration fees depends on exactly what the fees are 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 the fees 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, so it will 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 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 tax deductible for federal tax purposes.
For example, your total registration fee might be $175, but if that includes $2 for each $1,000 of value and your car is worth $30,000, your actual tax deduction is limited to $60 of that $175: $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—a tax—at least under most circumstances.
How to Determine Value
The situation is 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 can 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 it 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 maybe-elusive value-based number.
Timing Matters, Too
The IRS imposes a couple of other rules for deductibility of car registration fees. The value-based portion of your fee is only considered a tax, making it deductible, if it’s assessed annually. But this doesn’t necessarily mean that you’re only billed once a year. Some states break the due dates into semi-annual or even quarterly payments. The key is that they’re only assessed once a 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 payments…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 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, which effectively doubled the standard deductions. 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.
Other itemized deductions that remain alive and well in 2018 after tax reform include charitable giving, medical and dental expenses, and home mortgage interest. Personal property taxes are included under the umbrella of itemized state and local taxes.
Tally up all the itemized deductions you’re entitled to claim, then compare the total with your standard deduction:
- Single and Married Filing Separately: $12,200 in 2019, increasing to $12,400 in 2020
- Married Filing Jointly and Qualifying Widow(er)s: $24,400 in 2019, increasing to $12,800 in 2020
- Head of Household: $18,350 in 2019, increasing to $18,650 in 2020
The TCJA makes another important change as well. The state and local tax itemized deductions 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. It’s over the $10,000 limit.
But all your state and local taxes would be deductible if they add up to $9,060 because this total comes in under the cap.
Legislation was proposed in February 2019 to repeal the $10,000 limitation, but it's still in effect as of the 2019 tax year—the return you'll file in 2020.
How to Claim the Deduction
If your total itemized deductions amount to more than the standard deduction for your filing status, you must enter all these claimed deductions on Schedule A in order to itemize. You must then submit Schedule A with your tax return.
Personal property taxes go on line 5c of the 2019 Schedule A, and the total of your itemized deductions on the schedule is then entered on line 9 of the 2019 Form 1040 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, and 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 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. You're limited to the equivalent of the percentage of miles you drove your car for business purposes, 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 only drove 6,000 of those miles for business purposes. 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.
IRS. "Topic No. 503 Deductible Taxes." Accessed June 17, 2020.
IRS. "Taxpayers Should Know the Difference Between Standard and Itemized Deductions." Accessed June 17, 2020.
IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2020." Accessed June 17, 2020.
The Tax Foundation.org. "Analysis of the “SALT Act." Accessed June 17, 2020.
IRS. "Topic No. 510 Business Use of Car." Accessed June 17, 2020.