So, I called the Texas Comptroller, got through and spoke to a human who was very helpful! She was very well informed and the answer was quite strait forward.
Here is what I learned:
The cap cost reduction, due to trade-in, exists for all purchase and leases in Texas which ultimately lowers tax paid. If you have a trade, the owner of the vehicle will get to subtract the value of their trade from the value of the new car and pay tax on the difference. Done deal.
Notice I said “owner”… So here are the differences:
What determines WHO gets to reduce their cap costs depends if you are leasing or purchasing the new vehicle from the dealer.
Lease:
As y’all know, when you lease, you are not responsible for taxes. The owner (Lessor) is. The Lessor simply passes the tax bill (or savings) on to you. This “passing” can be negotiated. It’s up to the Lessor to charge you tax or to pass on a tax saving cap reduction from a trade-in. As mentioned in other posts, this explains why some leases can have “no tax” as a promotion. Obviously, in 99% of all cases, the Lessor will pass the tax bill on to you. So, if you’re looking at a lease and you got a trade and you don’t want to pay full tax again and the dealer is saying you have to pay tax on the full purchase price, it’s up to you to walk or not. The TX Comptroller clearly stated that the owner of the vehicle will receive the reduction in cap cost, due to a trade, and use the trade to reduce cap cost and therefore taxes paid.
Purchase:
It’s even easier when purchasing a new car with a trade and it’s the same exact reduction from a trade-in. The owner of the trade (considered me by the bank) still gets the tax reduction benefit, as above with the lease, but since I am ‘purchasing’, I am responsible for taxes as I am considered the owner. Therefore, the reduction in cap cost (difference between trade-in and new car price) is given directly to me and I pay tax on this difference.
Also, it doesn’t matter if you have a balance on your trade. The tax reduction is based on the trade-in value the dealer offers you and the new vehicle price.
I didn’t ask about trading with a lease but it’s the same thing. You’d have to negotiate with the new Lessor and work something out. You may have to talk to the Lessor of the trade. Not sure but, again, the goal is to get your taxes reduced by negotiating because in the state of Texas, SOMEONE will get that tax break.
Anyway, thanks everyone for all the info. Very helpful and helps me along my path!!