Cash For Clunkers – featuring upto $4,500 tax free vouchers!

By Manendra Kothari.

UPDATE: This program was discontinued effective August 2009.

On June 24, President Obama signed into law, the Supplemental Appropriations Act, 2009. The Act includes the “cash for clunkers” provision, which gives a cash incentive for individuals and businesses to trade in older gas guzzlers for new, more fuel-efficient ones. The incentive comes in the form of a tax free voucher of $3,500 or $4,500. It depends on the type of vehicle traded in and the fuel efficiency of the vehicle purchased. The new vehicle must be purchased between July 1 and November 1 of 2009.

Clunkers (Trade in), should be in drivable condition; have been continuously insured, registered and in use to the same owner for at least 1 year (So no one can buy a junkyard car to flip); were made less than 25 years before the trade-in, and in the case of an auto / truck, achieve a combined fuel economy of 18 mpg or less. A single person may get only one tax free voucher and only one such voucher is available for joint registered owners of a single eligible trade-in vehicle.

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Different rules apply to passenger cars, and various trucks. New car must have a sticker price of $45,000 or less. New passenger cars will qualify under the program only if they have a fuel economy of at least 22 MPG. If the new model gets 4 + mpg improvement than the old car, you qualify for the $3,500 credit and with a 10 + MPG improvement, you can qualify for a $4,500 credit.

Similarly, for light trucks, SUVs and minivans, the new vehicle has to have a fuel economy of at least 18 MPG. If the new model gets 2 + MPG improvement than the old vehicle, you qualify for the $3,500 credit and with a 5+ MPG improvement, you can qualify for a $4,500 credit. For heavy-duties (6,000 to 8,500 pounds gross vehicle weight rating), the new vehicle has to have a fuel economy of at least 15 MPG. If the new model gets 1 MPG improvement than the old truck, you qualify for the $3,500 credit and with a 2+ MPG improvement, you can qualify for a $4,500 credit.

Once the $1 billion appropriated for the program runs out, it’s done unless congress extends. The expected result is to shift future demand of approx. 250,000 cars / trucks to the present year.

You can use this incentive with other offer as well. For example, you could trade for a hybrid and get the voucher, claim the hybrid tax credit and get dealer or manufacturer discounts. You also could deduct the sales tax, if any, on your next federal tax return.

So many people asked me if S corporation would be eligible to get tax vouchers under this program. I dont see any reason why any corporation should not be qualified under this program.

On July 31st, House declared that they reached the 1 billion limit and it is considering to grant additional 2 billion to this program.
Have some more questions about the program? Please click here

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