With insurance, maintenance and registration fees, owning a car can feel almost as expensive as buying one. However, you might be able to claim your registration fees as a tax deduction on your federal return, depending on how you use your car and how the vehicle registration fees are calculated.
If you're not using your car for business, you can only deduct your car registration fee if it's calculated based on the value of your car, because then it qualifies as a personal property tax. For example, if your state bases the registration fee on the Blue Book value of your car, it's deductible. However, if the state bases the registration fee on the weight of the vehicle or simply charges a flat fee, you can't deduct the registration fee.
In some states, the registration fee is calculated through a mix of factors. For example, your state might charge a portion based on the weight of the car and a portion based on the value of the car. If this applies to you, your entire deduction isn't lost, but you can only deduct the portion that comes from the value portion. For example, if the total fee you pay the state's Department of Motor Vehicles is $300 but only $200 is based on the value of your car, your deduction is limited to $200.
Even if you qualify to deduct the registration fee as a personal property tax, you're not allowed to claim it unless you part ways with your standard deduction. The personal property tax write-off is an itemized deduction, so it goes on Schedule A, line 7. Along with your other itemized deductions, such as mortgage interest, charitable contributions and other deductible taxes, the total replaces your standard deduction on line 40 of your Form 1040 tax return. If your itemized deductions don't exceed your standard deduction, it doesn't make sense to claim it.
If you use your car for business purposes, the registration fee counts as a business expense that you can write off on Schedule C if you use the actual expenses method. For example, if you freelance as a tutor and use your car to meet clients, that counts. If you choose to use the standard mileage rate instead, you can't tack on the registration fee on top. If the car is only partially used for business, prorate the registration between your personal miles and business miles. For example, if 60 percent of your car's miles for the year are business miles and the registration fee is $100, you could deduct $60 on Schedule C.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."