How does it work, you ask. Well…
The government issues electronic vouchers to auto dealers that sign up for the program. Dealers can use these vouchers to reduce the purchase price of a new vehicle by $3,500 or $4,500 for customers who trade in an old, gas-guzzler. When customers buy cars, the dealers will submit these vouchers to the Feds and receive payment within 10 days.
Rules for New Passenger Autos
A new passenger auto must have an MSRP of no more than $45,000 and have a Combined Fuel Economy (CFE) rating of at least 22 mpg. The old clunker must have a CFE of 18 MPG or lower. Leased cars can qualify, but the lease has to be for at least 5 years…good luck finding a 5 year lease.
The dealer gets the $3,500 allowance if the new auto’s CFE is at least 4 MPG higher than the trade-in’s CFE. If the new auto’s CFE is at least 10 MPG higher, the dealer gets the $4,500 allowance.
Rules for New Trucks and Vans
There are three sets of rules for various size trucks and vans.
Category 1 |
Category 2 |
Category 3 |
|
New Vehicle CFE Requirement |
At least 18 MPG |
At least 15 MPG |
NONE |
$3,500 Allowance |
At least 2 MPG increase over old vehicle |
At least 1 MPG increase over old vehicle |
Allowed for model year 2001 or earlier trucks traded in for a Category 2 or 3 truck |
$4,500 |
At least 5 MPG increase over old vehicle |
At least 2 MPG increase over old vehicle |
NOT AVAILABLE FOR WORK TRUCKS |
The trade-in vehicle:
- must be in drivable condition
- must have been insured and registered to the same owner for at least one year prior to the trade-in
- this prevents people from buying clunkers at junk yards and immediately trading them in for the allowance.
- must have been manufactured less than 25 years before the trade-in date
This posting contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.