Napier & Company, LCC

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"Cash for Clunkers", also known as The Car Allowance Rebate System.

This program, signed into law on June 24, 2009, gives a cash incentive to individuals and businesses to trade in older gas-guzzling vehicles for new more fuel-efficient ones. A vehicle can be either a car or truck. The eligible trade in vehicle is one that at trade in time is:
 

1. in drivable condition,

2. was manufactured less than 25 years before the trade-in date

3. has been insured and registered to the same owner for at least one year, and

4. has a combined fuel economy of 18 mpg or less.

5. The program applies to the purchase or lease of a new vehicle, provided the new lease period is at least 5 years. The new vehicle must be purchased or leased between July 1 and November 1 of 2009. Trade in for a used vehicle does not apply.

This incentive is in the form of a voucher of $3,500 or $4,500. The voucher amount depends on the type of vehicle traded in and the fuel efficiency of the vehicle purchased or leased. Cars (passenger autos) and trucks are eligible for the $3,500 or $4,500 voucher depending on the various levels of CFE (combined fuel economy) of the new fuel efficient vehicle and the eligible trade in vehicle.

The vouchers will not be treated as gross income for Federal income tax purposes or for federal and state assistance programs. The voucher will be received directly by the selling dealer from the Treasury. The selling dealer will then reduce the new vehicle’s purchase or lease price by the amount of the voucher.

Because the vouchers are not included in gross income:

1. A business who utilizes the program is treated as if it traded in the old vehicle and received zero for it. The basis in the new fuel efficient vehicle would be the amount it pays net of the voucher and any other rebates.

2. An individual who utilizes the program may be able to claim an income tax deduction for qualified motor vehicle taxes paid (regardless of itemizing or claiming the standard deduction). In addition, they may be able to claim a credit for vehicles that qualify for the hybrid credit or the advanced lean burn technology motor credit.