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What Colorado Vehicle Registration Taxes Can I Deduct From My Income Tax?

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    Ownership Tax

    • Ownership tax is a personal property tax based on a vehicle's manufacturer's suggested retail price (MSRP). The taxable value of your car is calculated by multiplying the MSRP of your vehicle by 75 percent for trucks and trailers or 85 percent for passenger vehicles and motorcycles. Therefore, a passenger car with an MSRP of $20,000 would have a taxable value of $17,000. This amount is then multiplied by the vehicle's tax rate, which is determined by the age of the vehicle. The tax rates range from a flat fee of $3 to 2.1 percent of a vehicle's taxable value depending on the age of the vehicle. A 3-year-old car with a taxable value of $17,000 would have an ownership tax of $204; which would be the amount that could be deducted from the federal tax return.

    Ownership Tax Deduction

    • Colorado taxpayers that want to deduct the ownership tax on their federal income tax returns must itemize deductions. The Internal Revenue Service provides taxpayers the choice to itemize deductions or to take the standard deduction. Both the standard and itemized deductions are dollar amounts that reduce a taxpayers' taxable income, which in turn can reduce the amount of tax owed. In 2011, the standard deduction for a single taxpayer with no dependents was $5,800. Therefore, a taxpayer that wanted to deduct Colorado car ownership tax would need to have qualified deductible expenses, such as mortgage interest, medical and dental expenses, and tuition and fee expenses in excess of $5,800 for it to make financial sense to itemize deductions.

    Sales Tax

    • Colorado residents that purchase a new vehicle during the year may also be able to deduct some or all of the sales tax that was paid on their federal tax returns. The sales tax deduction can be taken by taxpayers that have chosen to take the standard deduction and are not itemizing deductions. Income limits do apply; in 2011, a taxpayer with an adjusted gross income of $135,000 or more would not have been able to take the sales tax deduction. In addition, the deduction is limited to the tax paid on the first $49,500 of the vehicle's purchase price.

    Claiming the Deduction

    • Taxpayers looking to claim the ownership tax deduction would itemize the deduction on a Schedule A on IRS Form 1040. The Colorado ownership tax charged is found on the vehicle registration receipt under the section labeled "OWN. TAX". Colorado taxpayers who are taking the standard deduction, and wish to deduct new vehicle sales taxes can do so on a Schedule L form. The Schedule L can be used with both the 1040 and 1040A tax forms.

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