The term “personal property tax” means an ad valorem tax imposed on an annual basis on personal property.
To qualify as a personal property tax, a tax must meet a three-part test:
Part 1: The tax must be ad valorem. A tax based on criteria other than value is not considered an ad valorem tax. For example, some states base a motor vehicle tax on the vehicle’s value, weight, model year or horsepower. If the motor vehicle tax is based on value, it is considered ad valorem and qualifies as a deductible personal property tax.
If part of the motor vehicle tax is based on value and part based on weight, the portion of the tax related to the value is deductible, and the portion of the tax related to the weight is not.
Part 2: The tax must be imposed on an annual basis, even if collected more or less frequently.
Part 3: The tax must be imposed on personal property. A tax may be considered to be imposed on personal property even if, in form, it is imposed on the exercise of a privilege.
These three rules are why taxpayers are able to deduct registration fees for cars, boats, mobile homes and trailers as a personal property tax provided that they are ad valorem or at least partially ad valorem.
To deduct any personal property tax, taxpayers must file Schedule A and itemize their deductions.
Taxpayers should look at a car, boat, mobile home or trailer registration to determine whether the registration fees are ad valorem. This document usually shows the amount of the fees as well. The registration form itself can serve as documentation or backup for the deduction.