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Tips on Buying Cars/Trading Purchased Car for a new Leased Car in Texas


I am currently in negotiations to lease a Honda Accord in Texas.  I am trading in my currently purchased (but financed) car.  The dealer says that I don't get sales tax credit when I lease, but only if I bought a new car.  Is this true?

Hi Vince,

I am a west coast dealer etc and not up to speed on Texas tax laws as they apply to car buying and leasing. My instinct is that you are entitled to a sales tax credit in Texas but there are a couple of things I would need to know in order to give you more input:

1. What is your payoff on your car and what is the dealer offering to give you for it on trade?

I sent your question over to a dealer friend of minhe in Houston and will forward his response when I get it but in the meantime I found this website which appears to speak to your question:

This link shows that Texas is a tax credit state ...hmmm I will update this answer as soon as I get the definitive answer from Houston making sure that leased vehicles are treated the same way. Even though my home state (Oregon) doesn't have a sales tax I can tell you that sales tax on a leased vehicle is based upon the monthly payment in mosts states. Here is some more info for you to consider:

In most states, the process listed below is used when calculating sales tax on a lease. Contact a local dealership to determine what method is used in your state, as methodologies are routinely changing.
Step 1: Find the Base Monthly Payment
The base monthly payment is defined as your monthly payment, inclusive of monthly depreciation and finance charges, but not including taxes or any local registration fees. Taxes are commonly excluded so that a manufacturer can offer a cheaper lease in advertising, and so ads do not need adjustment to account for differing local tax rates. A dealership, like those you can contact via CarsDirect, can give you the base monthly payment for a lease.

Step 2: Add Sales Tax to Payment
Multiply the base monthly payment by your local tax rate. For example, if a lease on a Mercedes-Benz E-Class has a monthly price of $699 before tax, and your sales tax rate is 6%, the monthly lease tax is $41.94 in addition to the $699 base payment. This makes the total lease payment $740.94.

Step 3: Calculate Tax Over Lease Term
To determine how much sales tax you will pay over the entire term of the lease, simply take the tax amount found in Step 2 and multiply it by the length of the lease. For example, if the E-Class lease noted above was for 39 months, your total sales tax over the term would be $1,635.66.

In some states, lease car tax is based on the full selling price of the vehicle. For example, if the Mercedes-Benz E-Class from the example above had an MSRP of $55,100 and a final selling price of $53,000, the full $53,000 would be taxed, regardless of the term of the lease. Assuming that the sales tax rate is 6%, $3,180 in sales tax would be due on the lease. It could be paid in one lump sum, or in installments along with the monthly payments, in which case the tax would cost $81.54 per month on a 39 month lease. If your state calculates lease tax in this manner, you may be able to purchase a vehicle rather than lease and have a similar payment, as the tax breaks associated with leasing are not available.

my email address is roadloans@GMAIL.COM feel free to ask me as many follow ups as you need in order to be able to give me a great review ...I will keep you posted on the rest of this answer other reason to hesitate on this is because for the most part only franchised dealers can lease new cars and they aren't likely to tell you something like that if it isn't true. ...Well we shall find out!  

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Roger Alvey


I can answer any question about the car buying process. I am a recognized industry expert on all issues regarding auto finance, including sub prime and buy here pay here financing, I can answer questions about car lock out systems, GPS monitoring by your bank, and about auto recovery methods and defenses. I am a 20 yr car industry expert and can tell you what to look for in a used car, how to negotiate the deal, help with how to market your own car, and how to negotiate with the internet department of any car store. I can tell you every single way the dealer is set up to beat you and how to avoid those traps, I can discuss all aftermarket and extended service contract products you will be offered in the finance process, I have lectured extensively on "The Best Way to Buy a Car" to civic groups and university students. I am a credit expert and can tell you what the dealer and banks are looking for and the rate you can expect to pay. HERE IS THE LINK TO MY OTHER ALLEXPERTS CATEGORIES WHERE I HAVE ANSWERED LOTS OF QUESTIONS HERE IS A LINK TO MY BLOG


20 years industry experience in top management of dealerships and dealer groups. Recognized industry expert since 2004 in the Top 10 industry experts for The Gerson Lehrman Groups Auto Industry Council. I also do consulting work for Atheneum Partners, Expert 360, Expert Connect and Coleman Research. I have been a franchise owner and understand all facets of the auto industry from the time the car leaves the factory until it leaves the lot with it's new owner. I have written training materials for both the prime and the subprime sales and finance process.

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