taxes

Motor Vehicle Tax Guide

Trade-Ins

If the purchaser of a motor vehicle trades in a vehicle as part of the transaction, the purchaser can deduct the value of the traded vehicle from the selling price. To be eligible, the trade-in must be taken as part of the same sales transaction and transferred directly to the seller. The tax is computed on the remaining selling price for the purchased vehicle.

For example, Jim purchases a $25,000 vehicle and trades in his $10,000 vehicle. Jim owes motor vehicle tax on the $15,000 difference.

The purchaser can take this deduction only by trading in a motor vehicle. Any other property, such as a boat, airplane, livestock, etc., that a seller takes in trade cannot be deducted from the selling price for motor vehicle tax purposes.

The value of the motor vehicle trade-in is not the equity, but the value of the vehicle traded in.

Motor vehicle tax cannot be reduced by the proceeds of a private-party sale or the sale to a different dealer of a motor vehicle that could have been used as a trade-in.

Also, the purchaser (i.e., lessee) of a motor vehicle cannot trade in a vehicle they are leasing since they are not the title owner of the leased vehicle.

Be aware that when calculating motor vehicle tax due in a private-party transaction, where a trade-in is involved, standard presumptive value (SPV) procedures may apply to determine the taxable value of the selling vehicle but do not apply in determining the value of the trade-in vehicle.

Multiple Trades

A purchaser can trade in more than one motor vehicle on the purchase of another motor vehicle, or one motor vehicle on the purchase of more than one motor vehicle.

The seller must describe the first trade-in in Box 36 of Form 130-U, Application for Texas Title and/or Registration (PDF). Additional trade-ins for this transaction are noted in Box 37.

Split Trade-In Value

When a purchaser trades in a motor vehicle on the purchase of two or more motor vehicles from the same seller and the trade-in motor vehicle is greater in value than any single price of a motor vehicle being purchased, the trade-in value may be split among the purchases to allow full credit for the trade-in.

The seller must show the trade-in description on each Form 130-U (PDF) and reference the forms to each other to clarify the transactions. The seller must reference the tax receipts in the same manner.

Trade-Down

There is no tax due when a purchaser trades in a motor vehicle of greater value on a motor vehicle of lesser value, commonly referred to as a trade-down.

For example, Sally purchases a $20,000 vehicle from dealer and trades in to the dealer her $30,000 vehicle. Sally owes no motor vehicle sales tax on her trade-down of vehicles.

If Sally trades her $30,000 motor vehicle in a private-party transaction for a vehicle worth $20,000. Sally owes no motor vehicle tax because a trade-down has occurred. The other party has traded up and must pay motor vehicle tax on the $10,000 difference.

Vehicle Sold to Lender at Conclusion of Balloon Note

Sometimes a borrower/purchaser will enter into a finance agreement where, at the conclusion of the agreement, there are three options available regarding the ownership of the motor vehicle:

1. The borrower/purchaser pays off the balloon note, and the borrower/purchaser retains the motor vehicle;
2. The borrower/purchaser refinances the vehicle and retains the vehicle; or
3. The lender guarantees to purchase the vehicle from the borrower/purchaser.

If a borrower/purchaser sells the motor vehicle to the lender (option three) at the conclusion of a finance agreement, the borrower/purchaser cannot use that motor vehicle as a trade-in deduction in the purchase transaction of another motor vehicle. The borrower/purchaser is not directly trading the original motor vehicle for the purchase of a new motor vehicle to the new motor vehicle seller. If the seller of the new motor vehicle purchases the original motor vehicle from the lender, a separate transaction has occurred, and that does not count towards a trade-in tax deduction.

Purchase of Vehicle Consigned to Dealer

The trade-in deduction is allowed on the purchaser’s traded-in vehicle when purchasing a motor vehicle consigned to a dealer. Again, the eligible trade-in must be taken as part of the same sales transaction.

96-254
(09/2021)