Unfortunately, the answer to your question is no, this is not a deductible tax.
I was genuinely unfamiliar with the UK road tax system, and so I did a little tax research before writing this answer for you. As it turns out, according to the UK government:
"Vehicle tax rates are based on engine size, or fuel type and carbon dioxide (CO2) emissions, depending on when the vehicle was registered. The rates are split into bands. The lower the emissions, the lower the vehicle tax."
Under US tax law (which includes Americans working and living overseas), only certain vehicle registration fees and taxes are deductible; and in order to be deductible they have to be based on the value of the vehicle, and not another factor. Thus, a sales tax paid on buying new car is tax-deductible, as are portions of registration fees in certain states.
The legal reasoning is as
follows. The IRS only allows that portion of a state registration fee
that is based on the value of the vehicle to be included toward your
other itemized deductions. Any flat fee portion doesn't count, nor does any amount that is based on vehicle factors other than that of valuation. This
is why there are some 20+ states whose residents can potentially benefit from
the deduction; but the remainder cannot: their states do not charge
vehicle registration fees by value, and instead charge flat fees only
In the case of the U.K. road tax, it is based on engine size, vehicle weight, vehicle age, emissions standards, etc. The point being there is nothing in the road tax that indicates it is levied purely on the (objective) market value of the vehicle.
Unfortunately, under US tax law, that makes the U.K. vehicle tax nondeductible, as a personal income tax item.
This is a really good question, and we thank you for asking it, even if the answer is something other than what you were hoping to hear.
Finally, on behalf of all the veterans and non-veterans here at TurboTax, we also wish to take a moment to thank you for your military service. We do appreciate it.
