Vaughan, who is still the youngest goalscorer in the Premier League, joined from Wigan Athletic in the summer and was made captain.
But after 27 appearances and 11 goals, then-manager Gary Bowyer loaned him to Tranmere Rovers, only to be sacked and replaced by Stuart McCall days later.
Despite relegation into League Two at the end of last season, Tranmere are keen to sign him permanently, and Vaughan lives in the area.
Only a fortnight ago McCall told a fans' forum he wanted to keep Vaughan, but having seen his mood since the club returned to pre-season training, he has changed his mind.
“I was always keen to keep James and had explained to him how much I wanted him to be a key component in what we want to build, this season,” said the former midfielder, who started his third spell as permanent Bantams manager in February.
“I have had multiple conversations with him and they have always been open and honest.
“But, as time progressed and we got nearer to returning to training, I sensed negativity from him. Once we did come back, it was clear to see that no part of him wanted to be involved with us.
“We saw in training that James had no desire to be here. We tried to get him motivated and excited but, having seen him up close, it became obvious we could not have his negativity around the group, and his departure became inevitable.
“After spending time at Tranmere Rovers last season, it became apparent to James that he would rather have more time to spend with his young family, with more convenient travel arrangements.
“He began going through the motions in training and struggling for focus and motivation. I can understand his reasons but, once they were made clear, we had no option but to bring his time at the club to a conclusion.
“We cannot afford to have anyone here who is not totally committed, especially if they do not show active drive to help take the club forward.
“We are still very busy in the transfer market and recruitment for incoming players is very much ongoing.”
Vaughan scored three goals in eight games for Tranmere before the season was abandoned because of covid-19.
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