TAXES & LICENSES

Personal Property Tax

Did you know the property you own like your car, boat, motorcycle, etc. may be subject to state or local taxes? These taxes are known as personal property tax. Typically, personal property tax is assessed annually and based on the value of certain personal property you own, including assets used in your business. If you paid personal property taxes last year you may be eligible to deduct the payments you made on your tax return. This deduction may be applicable for both business owners and normal 9 to 5ers, the only difference being where you claim the deduction. In 2018, the government limited the total amount of state and property taxes you can deduct to $10,000.

UBER DRIVER / RIDESHARE

Tommy Schumacher is NYC based Lyft driver. When Tommy registered his vehicle with the DMV he paid a $350 registration fee, $200 of which was based on the value of his vehicle, the other $150 on its weight. The portion of the registration fee based on the value of his car could be considered a personal property tax. Since tommy uses his car 70% for Lyft / business, assuming he deducts vehicle expenses using the actual method, he would be eligible to include $140 ($200 x 70%) on line 9 of his Schedule C, and the remaining $60 on line 7 of his Schedule A (assuming he itemizes his deductions).

UBER DRIVER / RIDESHARE

Debbie Upton owns four cars that she hires out for use in her Uber fleet business. She paid registration fees totaling $1,500 (based on value) for her four business vehicles. Debbie was excited about the prospect of being able to deduct these costs. Unfortunately, since Debbie deducts vehicle costs for her fleet based on the standard mileage rate, she is not allowed to deduct any portion of the $1,500 of personal property taxes on her Schedule C.

AUTHOR / SPEAKER

Dunlap Phish, is an author and avid sailor based out of Fort Lauderdale, Florida. Infact, Mr. Phish finds much of his inspiration to write when he is out at sea for long periods of time. Last July, Dunlap received a bill from the city of Fort Lauderdale for taxes on his boat, the only problem was that since Dunlap was out at sea for months working on his newest novel he didn't see the letter or pay the tax until February of the following year. When he prepares his tax return in April he will not be allowed to deduct any portion of the property tax on either his Schedule C or his Schedule A since he did not remit payment to the taxing authorities until February of the current year.

AIRBNB HOST / LANDLORD

Lucy Abigail rented her guest house in Death Valley through Airbnb for 183 days last year. In preparation for the summer, in March she purchased an industrial HVAC unit for her guest house, which the county imposed $4,000 of personal property taxes on. Lucy will be able to deduct 50% (183/365) of the personal property tax on line 16 of her Schedule E (to the extent allowed), and the remaining 50% on line 7 of her Schedule A, assuming she itemizes her deductions.

ENTREPRENEUR

Alex Welbeck is the founder of a small co-working space in Philadelphia, PA. Last year Alex purchased $5,000 of furniture while building out his coworking space. In March he paid the city a 2% personal property tax on these assets. Next year when Alex prepares his tax return for the current year, he will be able to deduct the $100 of personal property tax on line 23 of his Schedule C.

MORE INFORMATION ON PERSONAL PROPERTY TAXES

  • Only fees based on value can be considered personal property tax -- Any taxes paid based on weight, model, year, use, etc. of your personal property must be excluded from your deduction.
  • To be considered a personal property tax, the tax must be imposed annually. If you pay your state or local government a one time tax on your personal property it would not be considered personal property tax.
  • If the personal property taxes are paid for property used in a business they are deductible on Schedule C, for property generating rental income Schedule E, for a tax payers personal use Schedule A (if the taxpayer itemizes deductions).
  • If you pay a fee that meets the criteria of personal property tax (defined earlier in article) but your local jurisdiction calls your payment a registration cost, fee, etc. you can likely still deduct the expense as personal property tax on your federal return.
  • 5. Personal property taxes are deductible in the year paid, not the year assessed. In other words, you can only claim the deduction once the full property tax amount has been assessed and the bill is paid. If the tax was assessed in the prior year and the bill is paid in the current year, the deduction can only be claimed on the current year return.