An extremely important question that I discovered while studying tax and preparing income tax returns is whether or not the new title tax that the state of Georgia places on cars is deductible as an itemized deduction. Prior to January 1, 2012, all car owners had to pay sales tax on the total value of the purchase as well as a tax on their car every year based on the value of the vehicle, which would decrease as the car got older. This tax is commonly referred to as the “birthday tax” because the individual would pay the tax when they renew their vehicle tag, which expired at the end of the month of birth each year. In 2012, the Georgia General Assembly passed a bill that eliminated the ...view middle of the document...
According to the Form 1040 Schedule A instructions, taxes are deductible as long as they are “based on the value alone and [are] imposed on a yearly basis. The new title tax is still based on the value of the car; however, the tax is paid only when the car is purchased. Therefore, the amount that the individual pays for this tax is not deductible, which can be disappointing when someone first figures this out. However, this change will not have any effect on an individual’s tax return after the year that they purchase the vehicle because they are not incurring any expense related to an ad valorem tax. In addition, depending on the taxpayer’s situation, this change may not make a difference in whether or not the taxpayer is able to itemize if they do not have additional or have very few itemized deductions. The new title tax may eliminate some income tax benefits, but it can help out individuals in the long run.
While some people might be discouraged by paying a significant amount of money in taxes in addition to the purchase price of the car when they purchase it and then not receiving any benefit on their taxes, there are several benefits from this new law. First of all, by paying the tax upfront, individuals avoid having to pay it every year, which can ease a constant burden on people who have to budget for this major expense every year. This benefit increases more and more if they keep the car for as long as possible as opposed to buying a new car every few years, for whatever reason. In addition, because the state government eliminated the sales tax on the purchase of a new car in the process of creating the title tax, the amount that people pay for the new tax is not much more than the amount that they would already have had...
