For federal tax purposes a portion of California Department of Motor Vehicle fees may be considered a personal property tax. To be deductible, a personal property tax must be a state or local tax that meets three criteria: it’s charged on personal property; it’s based only on the value of the personal property; and it’s charged on a yearly basis. All three criteria must be met or the fee is not deductible. Not all of California’s DMV registration fees meet these requirements. The portion that does is the licensing fee.
Determine what portion of your California DMV fees is deductible before you itemize.
How Vehicles Are Taxed
California’s current license fee is based on 65 percent of your vehicle’s value. Because the tax is tied to the value of the vehicle, the fee goes down each year as the vehicle depreciates. On new vehicles, the tax is adjusted downward each year for eleven years. On used vehicles, it is calculated on the vehicle’s value at the time it is acquired. If the car is less than eleven years old, the license fee is reduced each year based on the vehicle’s depreciation until it reaches eleven. For tax purposes, always use the most recent license fee you paid. Do not carry over the same amount from year to year.
Don’t Deduct All DMV Fees
Not all California DMV fees (1) are deductible. 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, weight fees for commercial vehicles, special plate fees for personalized license plates, county/district fees, and owner responsibility fees. When preparing your federal income tax return identify the license fee 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.
Decide Whether Itemizing Makes Sense
The licensing part of your California DMV registration fees is still deductible for the 2018 tax year. Additionally, starting Jan. 1, 2018, a new Transportation Improvement Fee was added to Californians’ vehicle registration bill. It ranges from $25 to $175. It too is charged on personal property (your vehicle). It’s based solely on the value of your vehicle and it’s charged annually. So it meets the three requirements to be deductible as a personal property tax on your federal return. This is in addition to the licensing fee.
However, a couple of tax reform changes may affect your ability to take this deduction. If you don’t itemize, you can’t take it and the threshold for itemizing is a lot higher for the 2018 tax year. Standard deductions have almost doubled to $12,000 for a single person, $18,000 for heads of households and $24,000 if you’re married and filing jointly. So, add up all of your deductions and ask yourself if doing the extra work to itemize makes sense.
However, for the 2019 tax year, for taxes that will be filed in 2020, the standard deduction has been increased for inflation. According to the IRS' website, " The standard deduction for married filing jointly rises to $24,400 for tax year 2019, up $400 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,200 for 2019, up $200, and for heads of households, the standard deduction will be $18,350 for tax year 2019, up $350."
Also, state and local tax deductions are no longer unlimited starting in 2018. They’re capped at $10,000. So, depending on the total of your state and local tax deductions, there may be no advantage to including your vehicle license and TIF.
Take Your Last Unlimited Deduction
Standard deductions for the 2017 tax year were $6,350 for single taxpayers, $9,350 for single heads of households and $12,700 for married couples filing jointly. That makes the 2017 threshold for when it makes sense to itemize much lower than 2018’s. Depending on your filing status, if your deductions for the 2017 tax year total more than $6,350, $9,350 or $12,700, you’ll want to think about itemizing. Also, 2017 is the last tax year you can take unlimited state and local tax deductions.
Use California’s DMV Fee Calculator
If you no longer have your registration invoice or you just want to double-check your math, use the Vehicle Registration Fee Calculator on the CA.gov website. It identifies the portion of California DMV fees that is tax deductible for any given tax year. Just enter your license plate number, the last five digits of the Vehicle Identification Number, and the tax year you are interested in. Information is available for the current tax year and the past two years.
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