Trade-In Tax Policy in the Lone Star State
Trading in your old vehicle when you buy a new ride at a dealership not only cuts money off the purchase price; it can also save you more by lowering taxes. Whether or not car buyers get incentives on used vehicles depends on state tax laws. What is the policy on trade-in tax discounts in Texas?
Like many states, Texas only requires sales tax be paid on the difference between the price of a trade-in and the vehicle one is buying. If you buy a new car for $25,000, for example, and trade-in your old car for $5,000, you’ll only be paying sales tax on $20,000. This is due to the fact that, if you think back to math class, 25,000 – 5,000 = 20,000.
The trade-in sales tax benefit does not apply, however, if you simply sell your old vehicle yourself. The vehicle must be traded in at the dealership where you’re getting your new ride. To take advantage, hit up a local dealership. Personally, we recommend one of our delightful Third Coast Auto Group locations! 😉
How much is the sales tax on a new vehicle in Texas?
The Texas sales tax for buying a vehicle is 6.25%. So, using our above example, if you buy a vehicle for $25,000, you’d normally owe a sales tax of $1,562.50 (.0625 * 25,000). If you also trade-in a vehicle for a $5,000 value, however, you’ll only be paying a sales tax of $1,250 (.0625 * 20,000). That means you’ve saved more than $300 in tax fees. Heck, that’s enough to buy a Nintendo Switch.
As with most states, the automotive sales tax formula in Texas is: Taxable Value = Purchase Price – Any Trade-In.
For more information, check out the requisite page on the Texas website.