A person in the business of selling, renting, or leasing motor vehicles may deduct its fair market value of a retired vehicle that is titled in Texas from the total consideration paid for a replacement vehicle. The fair market value deduction (FMVD) will then reduce the motor vehicle tax liability due on the replacement vehicle.
A motor vehicle includes a self-propelled vehicle designed to transport persons or property on the public highway and a vehicle designed to be towed by a self-propelled vehicle carrying property. The term includes automobiles, buses, vans, motor homes, motorcycles, trucks and truck tractors, truck cabs and chassis, semitrailers, trailers and travel trailers.
Persons in the business of selling, renting, or leasing motor vehicles must meet certain requirements to qualify to take the FMVD. For example, a person in the business of
A person in the business of selling, renting, or leasing motor vehicles may deduct the fair market value of a retired vehicle from the total consideration paid for a replacement vehicle.
A retired vehicle must
A replacement vehicle must
The FMVD is claimed at the time the replacement vehicle is titled and registered at the county tax assessor-collector’s office. The retired vehicle can be used as a deduction up to 18 months after it is removed from service and offered for sale.
A person in the business of selling, renting, or leasing motor vehicles can replace multiple vehicles with one of greater value, using the combined fair market value of the retired vehicles for the deduction. The fair market value of a single retired vehicle cannot be split among several, less expensive replacement vehicles.
When a person in the business of selling, renting, or leasing motor vehicles claims the FMVD, they must maintain records necessary to document the accuracy of the retired vehicle’s fair market value; and complete Form 130-U, Application for Texas Title and/or Registration (PDF), Box 38(c) with the total FMVD being deducted and provide the year, make and vehicle identification number of the retired vehicle in Box 36. If additional vehicles are taken as FMVD, then check Box 37.
The fair market value of a retired vehicle offered for sale is determined in one of two ways:
The amount of motor vehicle tax is based on the total consideration paid for the replacement vehicle, minus the FMVD taken for the retired vehicle.
A person in the business of selling, renting, or leasing motor vehicles can use the FMVD to establish the taxable amount and reduce the tax liability.
|Sales price of replacement vehicle||$35,000|
|Fair market value deduction of retired vehicle||- $12,800
|Tax rate (6.25 percent)||x .0625|
|Amount of motor vehicle tax due||$1,387.50|