California Deductibility of Property Tax for Home in Virginia

[wdeatrick]

I am a California resident who inherited a home and vehicle in Virginia. Can I deduct the real estate taxes for the Virginia home on my California tax return? Can I do the same for the personal property taxes for the Virginia car?

The FTB states “California does allow deductions for your real estate tax and vehicle license fees”, but I wasn’t sure if that applied to homes/cars outside of California.

https://www.ftb.ca.gov/about-ftb/newsroom/tax-news/march-2019/tax-deduction.html

[JulieS]

Yes, California does allow a deduction for real estate tax and vehicle license fees. 

Click here to learn more.

[Edited 01/03/22 | 3:20 PST} 
 

[wdeatrick]

Hi Julie, thank you for your quick response. The instructions for Line 5a that you posted mention only income taxes. I don't see property tax mentioned. I could not find instructions for Line 5b that covers real estate taxes or 5c that covers personal property taxes. Thanks again, Will D.

Additional Info: There is a long-running thread on TurboTax's handling of the deductibility of Virginia's automobile personal property tax at the following link. I'm not sure a consensus was reached but many users were confused on how/whether this deduction is allowed and how to enter it.

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/car-personal-property-taxes-in-v...

[Opus 17]

@wdeatrick 

Note that any discussion thread on this forum with the date of June 2019 is probably several years older than that. The June 2019 date is when all posts from the old forum software were moved to this new software.

The personal property tax that Virginia counties charge based on the value of the vehicle is certainly a deductible state and local tax on your federal tax return.  It is subject to the same SALT cap of $10,000 that applies to all state and local taxes (real property taxes, income or sales tax, and personal property tax).  I had no problems entering this tax deduction on my 2020 tax return.

The instructions for form CA-540 part 2 California adjustments to itemized deductions, indicate that you should copy your federal schedule A line 5a, 5b, and 5c in the column A of the form. That is your state and local income tax (5a), property tax (5b), and personal property tax (5c). Then, the instructions say for line 5a that California does not allow a deduction for state and local income taxes so you enter the same amount as a California subtraction in column B.  The instructions are silent as to line 5b and 5c, which I take to mean that your Virginia real property tax and personal property tax will be deductible on your California return, since no California adjustment is called for.  
https://www.ftb.ca.gov/forms/2020/2020-540-ca-instructions.html#Specific-Line-Instructions

Of course, TurboTax will do this for you.

[wdeatrick]

Thank you, @Opus 17. A literal reading of the California FTB 2019 News makes me agree with you. No restriction on the location of the property or automobile is stated, so most likely the Virginia home/car taxes can be deducted on my California state tax form. TurboTax did indeed fill out my 2021 California tax form in just this way, but lacking a positive confirmation in the form instructions, I do appreciate your confirmation on a reasonable interpretation of them.

California does not conform to the Federal $10K SALT deduction limit, so taking this route allows me to itemize my CA return and reduce my state taxes by a considerable amount.

For the Virginia car, I paid both a registration fee (which I believe is not deductible) and a personal property tax (which I believe is deductible). The Virginia definition of these two items may not align with how TurboTax defines them.

[Opus 17]

@wdeatrick 

I haven’t prepared my Virginia tax return yet for this year, so I don’t know how the program words things. It is always clear in the tax code that a car registration fee for the privilege of driving on the road is never tax-deductible. In some states, the registration fee is variable and is partly based on the value of the car. In those states, the registration fee is partly deductible to the extent of the portion that is determined by the value of the car.

In Virginia, there is an annual or biannual registration fee payable to the DMV and a separate personal property tax which is assessed by the county. The registration fee is not tax deductible but the personal property tax is. Separately, when you register a car for the first time in Virginia, you may pay a registration fee that includes sales tax for the value of the car (mostly on used car sales). In that case, the sales tax portion would be deductible as state sales tax. But, since most Virginia taxpayers will deduct their state income tax instead, the sales tax portion of the registration fee is not deductible.

if I recall correctly, TurboTax may ask for car registration fees but only from listed states where the registration fee is based on the value of the car. That does not apply to Virginia. Separately, TurboTax will ask about personal property taxes, and you have to be aware that your county car tax is a personal property tax. (Other states may tax other forms of personal property besides vehicles.)