Vehicle Title Change Fee

[cgmartin]

I live in California. I bought I motorcycle from a private party in 2020. I paid DMV over $1,300 in vehicle title change fees. When I do my taxes next year, will I be able to deduct any part of the fees I paid?

[Hal_Al]

Simple answer: No.

But taxes aren't simple.  There are two possible deductions, included in the fee; personal property tax and sales tax.  Both deductions are itemized deductions.  If you usually use the standard deduction, an additional $1300 is unlikely to make your total  itemized deductions more than the standard deduction ($12,200 Single $24,400 married)

In some states,  including CA, the vehicle registration fee includes a personal property tax, which is deductible on the federal return.

Some states don't have income taxes to deduct, so the IRS allows you to deduct either sales taxes OR state & local income taxes (but not both). For residents of most states, it's usually best to deduct income taxes, except when you have a large purchase subject to sales tax, like you. Instead of keeping track of every little thing you bought, You're allowed to deduct an amount from an IRS table (based on income & number of dependents). You are then allowed to add the sales tax on certain large purchases (cars being one of em) to the table amounts. 

[cgmartin]

I always itemize and my deductions always exceed the maximum standard of $24,400 for a married couple. How will I find out what portion of the amount I paid in fees can be deducted in my federal return?

[Hal_Al]

From the paper work, receipt/invoice from the DMV.  If the fees are not identified as sales tax, Ad valorem tax, personal property  tax or vehicle valuation tax, they are not deductible. 

For a list of states with a personal property tax on vehicles and the tax rate, see https://wallethub.com/edu/states-with-the-highest-and-lowest-property-taxes/11585/#vehicle

[cgmartin]

That list for California shows a vehicle/property tax of .65  I just received the "pink slip" and registration and both show that I paid a "fee" of $1,313, however, it does not give a break down, nor does it state what is is based upon. To my knowledge, that amount is based on vehicle value. Does that mean that I can take .65 of $1,313 and use it as a deduction?  Thx.

[cgmartin]

I just reviewed the previous year's taxes, and it refreshed my memory that  in the "Taxes You Paid" section of federal Schedule A, my combined state and local taxes and federal income tax paid, always exceed $10,000, which means that for my wife and I, there is a cap of $10,000 (line e - Enter the smaller of line 5d or $10,000.)  As a result, even if I include the license fees on all five vehicles I own, anything over $10,000 is not deductible.

[Opus 17]

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@cgmartin wrote:

That list for California shows a vehicle/property tax of .65  I just received the "pink slip" and registration and both show that I paid a "fee" of $1,313, however, it does not give a break down, nor does it state what is is based upon. To my knowledge, that amount is based on vehicle value. Does that mean that I can take .65 of $1,313 and use it as a deduction?  Thx.

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There is a long list of possible fees, only the "vehicle license fee" which is 0.65% of the vehicle's value, is tax deductible.

https://www.dmv.ca.gov/portal/vehicle-registration/registration-fees/

If your VLF was $1313, that would mean your vehicle has a market value of $202,000.  So unless it's a really expensive car, I expect the $1313 is the total of all the fees.   You would have to ask the DMV for a breakdown.  They know the year and model of the car and use a database like KBB or something else to set the value.

[Opus 17]

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@cgmartin wrote:

I just reviewed the previous year's taxes, and it refreshed my memory that  in the "Taxes You Paid" section of federal Schedule A, my combined state and local taxes and federal income tax paid, always exceed $10,000, which means that for my wife and I, there is a cap of $10,000 (line e - Enter the smaller of line 5d or $10,000.)  As a result, even if I include the license fees on all five vehicles I own, anything over $10,000 is not deductible.

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That sounds correct for you under the new laws.

For other people reading, a "license fee" is only deductible if it is based on the value of the vehicle as a personal property tax.  There is a long list of fees in California, and only the "vehicle license fee", which is 0.65% of the value of the vehicle, is tax deductible.

https://www.dmv.ca.gov/portal/vehicle-registration/registration-fees/

[cgmartin]

Yes, the $1,313 is the total of the title transfer fees, but also includes the yearly license fee. This is for a motorcycle I purchased in California for $13,800 

But in any event, for my tax situation, my property tax and personal tax paid exceeds the federal limit of $10,000 which I can deduct, so such license fees do not even come into play.