Cash for Clunkers!!!

June 26, 2009

President Obama signed into law the Supplemental Appropriations Bill (HR2346) to fund the wars in Iraq and Afghanistan on Wednesday June 24, 2009. Included in the bill was a provision aimed at boosting the sale of vehicles at financially struggling U.S. automobile dealerships. The so-called "cash for clunkers" program provides $1 billion in tax-free vouchers to automobile dealers who participate in the new program, thereby stimulating car sales in a governmental program to assist the flagging industry.

The program vouchers, worth $3,500 or $4,500, based on the amount of fuel efficiency improvement from the trade-in to the new vehicle, will be given to dealers when consumers swap old vehicles for more fuel efficient new cars or trucks. The vouchers will not be considered taxable income for the car buyer, at least in most states. However, it appears that California will not be one of those states, which means that any assistance received in the form of vouchers would be taxable income to California residents. Additionally, only one voucher will be issued per trade-in vehicle even with joint registered owners.

Under the clunkers program, trade-in cars must get no more than 18 miles per gallon, have been built in 1984 or after, and have been owned and insured by the purchaser for at least a year. The miles-per-gallon rating refers to the Environmental Protection Agency's combined city-highway rating of a given model. If you're unsure about the EPA rating for your clunker, you can always fire up your computer and point your web browser to http://www.fueleconomy.gov/feg/findacar.htm. That should give you all of the information you would need to determine the EPA mileage on your clunker. If you don't have access to a computer (how is it possible that you're reading this?), you can likely call your local car dealer and get the EPA mileage for your clunker (along with a sales pitch).

Nevertheless, the consumer would then get a $3,500 voucher toward a car that got at least 22 mpg. The voucher will increase to $4,500 if the new car is 10 mpg higher than the trade-in. For example, if your clunker gets 14 miles a gallon, and your new car gets 23 mpg, then you would qualify for the $3,500 voucher. On the other hand, if your clunker gets 14 mpg and your new vehicle gets 26 mpg, you'll be eligible for the $4,500 voucher since the mpg on the new car exceeds that of the clunker by 10 mpg or more. Additionally, consumers will also be able to use the vouchers toward the five-year lease of a vehicle. Vouchers will also be available for small and large light-duty trucks. Lawmakers estimate the program will subsidize between 600,000 and a million vehicles.

There is NO "means testing" attached to this program. That means that you can qualify for the program regardless of the amount of your income. So if you're a higher income taxpayer with that old clunker in the garage that you were going to restore one day, perhaps now is the time to trade it in and get a piece of the voucher action. But if you are a higher income taxpayer, remember that the price of the new vehicle can't exceed $45,000. So a voucher to help with the new Porsche likely won't be in your future. Understand also that the money isn't coming to you. The vouchers will be provided to the participating dealerships and will be redeemed by them directly from the Dept. of the Treasury. So if you have some larceny in your heart and are trying to figure out how to scam this voucher deal, it won't be easy...unless you're a car dealer, of course.

Obviously, the participating dealerships will have all of the details relative to this program, so you'll want to check with them to make sure that you (and your vehicle) qualify for the new program. I'm sure that they will be happy to help you with your research, while trying to get you to purchase a new auto at the same time. With prices of new cars at rock bottom, not might be the time to consider trading in the clunker sitting in the driveway for a shiny new auto. After all, somebody has to stimulate the economy, right? It might as well be you!