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According to the IRS, vehicle registration fees are classified as a personal property tax—that is, a state or local tax charged on personal property, based on the value of the personal property (as opposed to weight or other characteristics) and assessed on a yearly basis (even if it’s collected more or less than once per year in installments, for example). Such personal property is deductible in certain circumstances, but you cannot simply deduct the total amount of the fee; rather, the car registration fee deduction should be calculated as a percentage of the car’s value. Higher value cars with higher registration fees can thus garner a higher value deduction. Note that driver’s license fees and penalty fees imposed for late registration are not eligible for deduction.

Different states assess vehicle registration fees based on different factors. But the important thing to remember is that if the state in which you live imposes vehicle registration fees based on vehicle weight, you cannot deduct this fee as the deduction can only be based on value. If your vehicle registration fee takes into account both value and weight, you may deduct the portion that your state charges you for taxes that are based on the car’s value.

You may be able to identify the value-based portion of the fee on the car owner’s registration billing statement itself in states like California. Other states like Iowa go so far as to provide worksheets or online calculators to assess the car registration fee deduction. Consult your state’s Department of Motor Vehicles if you have trouble identifying whether your state assesses car registration fees based on value. A tax specialist or automatic tax preparation software can also help you assess the deductible, value-based portion of the fee. Numerous states do charge these fees based on the car’s value, but in several other states—like Texas for example, in which no portion of the vehicle registration fee is based upon car value—you cannot deduct any portion of the fee.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

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