If you register a car in California, you can deduct the auto registration license fee on your federal taxes. You will need a copy of your registration invoice close at hand when preparing your taxes, however, because the DMV lumps all kinds of “fees” into the car tag payment, and not all of them are tax deductible.
Personal Property Tax
For federal tax purposes a personal property tax is a state or local tax that must meet three criteria: it is charged on personal property; it is based only on the value of the personal property; and it is charged on a yearly basis. All three criteria must apply to the fee or it is not considered a deductible tax. Because a portion of California vehicle registration fee is based on the value of the car, the IRS treats vehicle registration license fees as personal property taxes. This distinction allows filers to deduct their vehicle fees on their federal income tax return.
Separate the Fees
A quick glance at your registration invoice will tell you that California lists multiple fees on the bill for vehicle registration. There are registration fees, the vehicle license fee (VLF), weight fees for commercial vehicles, special plate fees for personalized license plates, county/district fees, and owner responsibility fees. Not all of them are tax deductible. When preparing your federal income tax return identify the VLF only. Created in 1935 by the California legislature in lieu of a property tax on vehicles, this is the portion that is based on the value of the vehicle and therefore the portion that is tax deductible.
Use the Fee Calculator
If you no longer have your registration invoice or you just want to double check your math on the deductible portion of the registration fee, use the fee calculator on the California DMV website. Called the “VLF for Tax Purposes” Service, the fee calculator will identify the portion of the registration fee that is tax deductible for any given tax year. Just enter the license plate number, the last five digits of the Vehicle Identification Number, and the tax year you are interested in. The DMV keeps information on the current tax year, plus the past two years, available on the website.
How Much Is the Tax?
The VLF is currently set at 0.65 percent of the value of the vehicle. Because the tax is tied to the value of the vehicle, the fee will reduce each year. On new vehicles, the tax is adjusted downward each year for eleven years. On used vehicles, it is calculated on the value at the time it is acquired, and if the car is less than eleven years old, reduced each remaining year until it reaches eleven. For tax purposes, always use the most recent VLF paid and do not carry over the same amount from year to year.
How to Deduct
For most filers, vehicle registration fees that qualify as personal property taxes are deducted on Schedule A on Line 7. If the vehicle is used in connection with a business, however, the fees would be deducted on Schedule C, Schedule C-EZ or Schedule F, depending on which itemization form is used by the business.
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