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Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts

taxes

FAIR MARKET VALUE DEDUCTION


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.

Qualifying to Take the Fair Market Value Deduction

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

  • selling motor vehicles must hold a general distinguishing number (dealer’s license) issued by the Texas Department of Motor Vehicles (TxDMV); including, a franchised motor vehicle dealer, a nonfranchised motor vehicle dealer, an independent mobility motor vehicle dealer, and a wholesale motor vehicle dealer.
  • renting motor vehicles for 180 days or less must hold a qualified Motor Vehicle Rental Permit issued by the Comptroller’s office; and either be the title owner of at least five motor vehicles that will be rented within a 12-month period or hold a dealer’s license issued by TxDMV.
  • leasing motor vehicles for more than 180 days must be licensed by TxDMV or be excluded from obtaining a lessor license under Occupations Code, Section 2301.254(a) (License Not Required For Certain Vehicle Lessors or Vehicle Lease Facilitator); and be actively engaged in leasing at least five different motor vehicles during a 12-month period.
Qualifying Vehicles

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

  • be offered for sale prior to being used as an FMVD;
  • be titled in Texas in the name of the seller, lessor or rental company, or in the name of a qualifying related company in Texas;
  • have been used for business or personal use in Texas; and
  • be used only once as an FMVD.

A replacement vehicle must

  • be titled in Texas in the name of the seller, rental company or lessor; and
  • be used for business or personal use in Texas.
Claiming the Fair Market Value Deduction

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.

Determining the Fair Market Value

The fair market value of a retired vehicle offered for sale is determined in one of two ways:

  • When the retired vehicle is sold before claiming the FMVD, the fair market value is the price the seller received from the buyer; or
  • When the retired vehicle is being offered for sale, but has not sold before claiming the FMVD, the fair market value is the value on the title owner’s books at the time the vehicle is retired; provided that the owner’s book value is based on generally accepted accounting principles.
Computing the Tax

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.

Example
Sales price of replacement vehicle $35,000
Fair market value deduction of retired vehicle - $12,800

Taxable amount $22,200
Tax rate (6.25 percent) x .0625
Amount of motor vehicle tax due $1,387.50

Additional Resources


96-141
(05/2021)

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