CARS - "Cash for Clunkers" Tax Voucher

On June 18, 2009 the Senate voted to include the "cash for clunkers" provision as part of the wartime spending bill. It is fully expected that President Obama will sign this bill into law very soon [President Obama signed this bill into law on June 24, 2009]. What does this mean to the consumer who's looking to buy a new car with a more efficient fuel economy? Probably not a whole lot unless you own an old SUV you'd like to scrap... The problem is that most cars - even the really old ones - do not qualify as a "clunker" according to the bill.

How do you determine if your car is eligible for this program?

You'll have to talk to your local dealer to be certain, but your trade-in vehicle must meet these provisions:

• The vehicle must have been manufactured less than 25 years before the date of your trade in.
• The vehicle must have a "new" combined city/highway fuel economy of 18 miles per gallon or less. To determine what the "new" combined city/highway fuel economy rating is for your vehicle, visit fueleconomy.gov.
• The vehicle must be in drivable condition. If it's sitting on cinder blocks in your front yard, it probably won't qualify. This condition seems the most subjective, so you'll need to speak with your local participating dealer to see if your vehicle satisfies this stipulation.
• The vehicle you wish to trade-in must be continuously insured and registered to the same owner for the full year preceding the trade in. This little stipulation will help prevent the clever folks who try and purchase a qualified "clunker" at the junkyard for a few hundred bucks only to trade it in a few days later for $4500! Sorry - nice try, but they thought of that little loophole before the bill was passed.

If your vehicle meets these requirements, it may be a good time to go shopping, but there are a couple other things you should know before you go try to get cash for your clunker. One other thing - the car must be new and the purchase price must be less than $45,000.

First, this tax credit is NOT in place of any trade-in value of the vehicle. The dealer will not be reselling this car, so you cannot expect to receive the full trade in value for this vehicle but you can expect something for the scrap value.  By law, the dealer is required to destroy both the engine and the drive train.  All other parts on the car are fair game for the dealer to strip, reuse and/or resell.  When negotiating the price for the new vehicle, ensure that you are getting the full credit you deserve PLUS the scrap value (probably won't amount to a whole lot).  You won't get full trade-in value, but you should expect something... The value of the individual parts resold is generally greater than the scrap value of the vehicle.  Be sure you are armed with this knowledge because I wouldn't put it past a dealer to say you're getting $4500 for your trade-in, end of story.  You should have a little more coming!

Second, the vehicle you are purchasing MUST have a better "new" combined city/highway fuel economy. The clunker must have a fuel economy of no greater than 18 miles per gallon. To maximize your tax credit at $4500, the vehicle must be an improvement of at least 10 miles per gallon for a new car, or 5 miles per gallon better for a new light truck / SUV. For a lesser credit of $3500, the new vehicle must be an improvement of at least 4 miles per gallon for a new car, or 2 miles per gallon better for a new light truck / SUV.

Finally, there is nothing you have to do to obtain this tax credit. There are no vouchers, or end of year line items on your tax return. The tax credit should be applied immediately by your dealer at the time of purchase. Be wary of unscrupulous dealers eating into your tax credit by adjusting your purchase price upwards. Be sure when negotiating your final price, you deduct the tax credit from the invoice price you find listed on sites like edmunds.com.

If you have a question not answered on this hub so far, I encourage you to use the comments section and hopefully one of the readers will be able to help out or point you in the right direction.

How do I find out the "new" combined city/highway fuel economy?

Visit the federal government's official fuel economy website at http://www.fueleconomy.gov/feg/findacar.htm. Navigate the site by selecting the year, make, and model. Once on the page with the vehicle fuel data you will find a heading "Estimated New EPA MPG" - beneath that heading, there is a number in RED that says combined. This value must be under 18 for your trade-in vehicle, and must meet the minimum fuel economy requirements for your new replacement vehicle.

Which dealers are participating in the Car Allowance Rebate System (CARS)?

It is expected that nearly all dealers across America will participate in this program. I recommend that ou visit the official cars website at cars.gov for an updated list of participating dealers. (As of publishing time, the website has not begun listing participating dealers because the law has not officially been signed into law yet by President Obama. Once the system kicks off, the CARS website will be updated to reflect this).

Is this applicable to foreign cars?

Yes. As long as your vehicle meets the "clunker" requirements, and your new vehicles satisfies the fuel economy requirements, you should be fine. There is no special qualifications other than the car requirements stated and proof that the vehicle has been insured and owned by you for the past full year.

Is this credit retroactive if I've recently purchased a vehicle?

Sorry, but NO. It is estimated that the official start date will apply for purchases beginning in July. An exact date has not yet been determined, so make sure to visit the official cars.gov website for updates.

What if my car is worth more than the $4500 tax voucher?

Then this is not the program for you because you would get no benefit. Make sure to ask your dealer with the scrap value of your car is as they are required by law to provide this value to you so you are not cheated. If your car is worth more than $4500, then you would be better off trading in your car as if the tax voucher was non-existent.

In addition to this credit, will I get the full value of my trade-in vehicle?

No. The law requires your trade-in vehicle to be destroyed. Therefore, the value you negotiate with the dealer for your trade-in vehicle is not likely to exceed its scrap value. As noted in the article, the actual requirement is for the dealer to completely destroy the engine and drive train, so they will likely strip your vehicle of any salvageable parts.  If you're curious about the scrap value of your vehicle, ask your local dealer (maybe call up a couple for estimates).  The law requires the dealer to disclose to you an estimate of the scrap value of your trade-in vehicle.

Is this applicable for new car purchases only, or will it work for a lease too?

The tax voucher applies to new car leases as well as long as the duration of the lease is at least 5 years.