Can I deduct personal property taxes on a leased vehicle?

[alyssa-lowry]

I lease two cars and my state taxes me each year (Connecticut) can I deduct?

[JulieM · Accepted solution]

Yes.  You may take a personal property tax deduction for the applicable amount (varies by state) for any vehicle you pay this tax for.  The vehicle can be leased, financed, or purchased outright.

Please let us know if you have any further questions, we will do our best to assist you

[alyssa-lowry]

Thank you Julie! What section within the tool should it be entered?

[mmahieu]

What if this property tax is paid to the leasing company, and not directly to the taxing authority?

[KrisD15]

@mmahieu

@RTB

Yes, if you pay the tax (and please make sure it is a tax and not a fee, that varies by state) you may claim that as a deduction. It is the same as when you pay a lender through your mortgage payments and in return the lender submits your property tax payment for your home. 

(there is a list on the TurboTax software that shows which states charge vehicle tax)

[ghep]

Can I also do this as a renter of real estate that pays property tax through my landlord? If we change the lease agreement so that it specifically states that I am responsible for the property tax? See example below:

Lets say my rent is $1000 a month and my landlord pays $2400 a year in property taxes for my unit. So each month, about $200 of my rent goes towards property taxes. 

We decide to make a new lease agreement, where it specifically states that I am responsible for paying this $200 in property taxes and the other $800 in rent. But, in practice, I still just give my landlord $1000 every month and they use it to pay the property taxes (this is the same way it is done with some car lease companies). I get a receipt that says $200 is for taxes and $800 for rent. 

From the landlord point of view, their finances do not change. Whether they want to claim that $200 as income and then deduct later, or they never claim it at all, their profit and taxable income is the same, correct? And, with respect to tax liability, they seem to gain an advantage. If I don't pay them, they can tell the IRS to come after me. Or, they can just keep paying the property taxes and use the lease agreement to evict me and get their money that way. It seems like they just gain an option to leave it to the IRS.

From the tenant point of view, the only financial change is that I now have the option to include these property taxes in itemized deductions. My monthly expenses do not change. The only disadvantage may be with respect to tax liability. Now, if I don't pay, the IRS could come after me. However, I was already essentially liable for this $200 in the previous setup with the very real consequence of eviction. So, if I don't pay and get evicted, whether the landlord and the IRS come after me, or just the landlord, the total amount I would owe would be the same. So, why would I care who's coming after me?

This seems like a win win, is it allowed? If so, why is it not more common? Rents/property taxes are pretty high in big cities, could help out a lot of renters...

[Anonymous]

from IRS Publication 17 taxes as an itemized deduction

Generally, you can deduct property taxes
only if you are an owner of the property. If your
spouse owns the property and pays the real estate taxes, the taxes are deductible on your
spouse's separate return or on your joint return.

however, if the leased property were used in business you could deduct the property taxes as a business expense because then it becomes a deduction under a different code section. 

i also question whether personal property taxes on leased property are deductible unless again the property is used in business. 

for homes often the real estate taxes are buried in the rent at other times the landlord wants to net $x in rent and so makes the tenant responsible for the RE taxes. - still not deductible.  

yes, it is unfair because it is the tenant that pays the taxes but there are many provisions in the code that are unfair.  

[ghep]

Thank you so much for the reply and for acknowledging it is unfair. I've asked this question on social media and just constantly get trolled by ill-informed landlords telling me I don't pay property taxes and don't deserve a deduction...

It does seem like from the publication 17 that restrictions are higher on real estate tax deduction vs personal property tax deduction. "Rent increase due to higher real estate taxes" are specifically not deductible. I can't see where it specifically says you have to own the personal property, so maybe people are using that as a kind of loophole. But still, 

Me: Leases car

Fed: Local property tax? You can deduct!

Me: Rents housing (to stay dry, survive)

Fed: No deductions!  

Not to mention in my state rental property taxes are on average 3X higher than owner occupied property taxes. OK, I guess I'll go buy a house now. Or maybe I'll get a better ROI on a guillotine, who knows...(joking)