Cash for Clunkers

Sick of driving an old beater or a huge gas-guzzler? This may be the time to finally trade it in. President Obama recently signed into law the Car Allowance Rebate System (CARS) Act that will offer buyers a $3,500-$4,500 credit if they trade in their old “clunker” for a new, more fuel-efficient vehicle.

Here’s how it works:

  • You must be trading a vehicle that is less than 25 years old and gets 18 or less miles per gallon (mpg)
  • You must be buying or leasing a NEW -not used- vehicle that gets at least 22 mpg
  • (Different rules apply to both of the above for certain trucks and other large vehicles)
  • The vehicle must have been insured and registered to the same owner for the entire previous year
  • The new vehicle must have an MSRP of $45,000 or less
  • The credit will be applied by the dealer at the time of sale
  • The program runs through November 1, 2009 or until funds are exhausted, whichever comes first
  • The buyer will get the scrap value of the trade-in (all “clunkers” must be destroyed after the sale) on top of the credit

As an added benefit, the amount of credit you receive is not considered taxable income to you.

This rebate will also not affect other government incentives including the Hybrid Vehicle Credit or the New Vehicle Tax deduction for sales tax paid on a new car. These incentives can be claimed on your 2009 tax return, but be aware of the different eligibility guidelines for each. For more information, see www.cars.gov