The Tax Attic – July 9, 2009

Jerry Coon, Enrolled Agent
Jerry Coon, Enrolled Agent

Cash for Clunkers

Our Congress is at it again. Passing laws and printing money seem to be their specialty these days. This particular program only has a one billion price tag, so it’s kind of small potatoes, but it’s still one BILLION dollars. I’m talking about the bill recently passed by both the House and the Senate, and is now awaiting President Obama’s signature:  HR 2346. It is officially titled as the “Consumer Assistance to Recycle and Save Act of 2009.” Unofficially, HR 2346 is known as the “Cash for Clunkers” program.

Basically, taxpayers can trade in a clunker on a new vehicle and get a credit from the federal government for a part of the purchase. The credit will only apply to purchases or qualifying leases that occur between July 1, 2009 and November 1, 2009, and Congress has only authorized up to one billion dollars worth of credits. It’s a first-come, first-served type of program.

In order to qualify for the credit, the vehicle traded in must meet four qualifications:

1.     The clunker must be in drivable condition.

2.    The clunker must have been registered and insured by the owner for at least one year immediately prior to the trade- in-         no going out and buying a $100 clunker on Monday and trading it in on Tuesday.

3.    The clunker must have been manufactured less than 25 years before the date of the trade-in-no trading in that 1980        
       Ford Maverick that has been sitting in the back field for the last 18 years.

4.   For automobiles, the clunker must get 18 miles per gallon or less of fuel economy.

Once the clunker rules have been met, there are three qualifications the new vehicle must meet:

1.   The new vehicle must have a title that has not been transferred to any person previously, and the purchaser must be the         ultimate purchaser. In other words, it must be new and right off the assembly line.

2.   The new vehicle must have a manufacturer’s suggested retail price of $45,000 or less.

3.   The new vehicle must meet certain miles-per-gallon (mpg) requirements-22 mpg for passenger automobiles, 18 mpg for       a Category 1 truck, or 15 mpg for Category 2 trucks. A Category 1 truck is defined as a non-passenger automobile that    
      gets at least 18 mpg and is not a Category 2 truck. I believe Category 1 vehicles are the smaller SUV and 1/4-ton Chevy  
      Silverado class of vehicle. A Category 2 truck is a large van or large pickup, most likely larger SUVs and the 1/2-ton  
      pickups. A Category 3 truck is a work truck as defined in the regulations.

The vehicles traded in must be certified by the dealer that they are being transferred for disposal and that the vehicles are not being sold, leased or exchanged. However, the vehicle’s engine block and drive train, including the transmission, drive shaft and rear end, can be salvaged and sold by the dealer. The dealer is not allowed to charge a fee for processing the voucher, but can charge up to $50 in connection with the scrapping of the vehicle.

The voucher itself comes in two levels: $3,500 or $4,500. The purchaser of the new vehicle will get a $4,500 voucher if the new vehicle is a passenger automobile that gets at least 10 mpg more than the clunker; or is a Category 1 truck that gets at least 5 mpg more than the clunker; or is a Category 2 truck that gets at least 15 mpg and gets at least 2 mpg more than the clunker and the clunker is also a Category 2 truck. The purchaser will get a $3,500 voucher is the new vehicle is a passenger automobile that gets at least 4 mpg more than the clunker; or is a Category 1 truck that gets at least 2 mpg more than the clunker; or is a Category 2 truck that gets at least 15 mpg and that is at least 1 mpg more than the clunker; or the clunker is a Category 3 truck of 2001 or earlier vintage.

As can be seen, the Cash for Clunkers bill is one large set of definitions. I certainly hope the rules will be laid out in more understandable English before November 1, 2009 rolls around. Or maybe Congress just wants to spend one billion dollars before November 1 and will leave it up to the auto dealers to make the rules fit the purchase. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns
Action Tax Service on Northland Dr in Rockford.
His e-mail address is

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