Most state and local governments tax personal property based on the value of qualifying items. According to the IRS, qualifying items include “moveable” property, like vehicles and valuable items you keep in your home. Each year, you can deduct up to $10,000 (or $5,000 if married filing separately) of state and local taxes on your federal return – this includes personal property taxes. Keep reading for more information on personal property taxes and learn how to deduct them from your tax return.
What are personal property taxes?
Personal property taxes apply to tangible, movable assets, meaning these items aren’t fixed to a specific location. Examples of taxable personal property include:
- Vehicles (cars, boats, airplanes, etc.)
- Jewelry
- Designer goods
- Collectibles
- Furniture
Personal property also includes business assets. Examples include:
- Office supplies
- Furniture
- Equipment needed to run your business (business vehicles, computers, etc.)
Most state and local governments impose personal property taxes. Each state has unique guidelines for qualifying items and how they are taxed, but personal property is subject to ad valorem taxes, meaning the taxable amount depends on the fair market value of the item in question.
To calculate your personal property tax liability for your state return, you’ll multiply the item’s value by your state or county’s tax rate. You can find your tax rate on your county tax commissioner’s website.
What are deductible personal property taxes?
Under certain circumstances, the IRS allows you to deduct up to $10,000 (or $5,000 if married filing separately) of personal property taxes paid to your local government on your federal tax return. To claim this deduction, personal property taxes must be charged annually and based on the property’s value.
If your personal property is used to run your small business, you can deduct the personal property taxes and the cost of the items – as long as they are considered ordinary and necessary to do your job.
How to claim personal property tax deductions
You must itemize deductions on your federal return to deduct personal property taxes. To do so, gather your receipts and documents and enter the applicable information on Schedule A.
It’s important to note that some states require you to itemize deductions on your federal return if you itemize on your state return. Contact your state’s department of revenue for this information before filing your taxes.
Personal property tax deduction FAQs
Do you have more questions about personal property deductions? We’re here with answers to your frequently asked questions.
Are personal property taxes deductible?
Yes, you can deduct personal property taxes on your federal return if the tax is based on the item’s fair market value and the tax is collected annually.
How does the IRS define personal property?
According to the IRS, qualifying personal property includes “movable” assets (e.g. cars, boats, and valuables kept in your home). This is not to be confused with property taxes, which apply to real estate.
How can I deduct personal property taxes?
To claim the deduction for personal property tax, you must itemize your deductions on your federal and, in many cases, state returns.
Do personal property taxes qualify as itemized deductions?
Yes, you can deduct personal property taxes on your federal return if the tax is based on the value of the property and is collected annually.
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