New Car Purchase Incentives
The government has instituted a couple of programs to stimulate the automotive industry by making it more appealing to purchase a new car. One program provides a tax credit for sales and exise taxes paid on a purchase of a new vehicle, while the other provides up to $4,500 in cash to buy a new car for owners of gas guzzlers that want to buy more eco-friendly vehicles. Here are the details.
Deduction of State Sales Tax for Purchase of a New Vehicle
For individuals that buy a new car or light truck between 11/12/2008 and 1/1/2010, the federal government will provide a tax credit that covers any state sales or excise tax on the vehicle. There are no limitations, except that the credit is capped for vehicles whose prices exceed $49,500. The credit applies to US or foreign made cars or light trucks.
Car Allowance Rebate System aka "Cash for Clunkers" - Program Ended on August 24, 2009
In order to reduce our dependence on foreign oil, to curve emissions and to stimulate the motor-vehicle industry, Congress passed a program that provides up-to $4,500 to people scrapping vehicles that do 18 miles per gallon or less, so that they can purchase (or lease for 5 years or more) a new, more fuel efficient vehicle.
The program was so popular that in spite of Congress adding an additional $2 billion to fund the program, money quickly ran out. The government announced that 690,114 vehicles were purchased through the program - rebates associated with those transactions are worth $2.88 billion.
Here is how it works:
Top 10 New Vehicles Purchased
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| Toyota Corolla |
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Honda Civic
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Ford Focus FWD
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| Toyota Camry |
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Hyundai Elantra
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Toyota Prius
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| Nissan Versa |
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| Ford Escape FWD
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Honda Fit
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Honda CR-V 4WD
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Top 10 Vehicles Traded-In
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Ford Explorer 4WD
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Ford F150 Pickup 2WD
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Jeep Grand Cherokee 4WD
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Jeep Cherokee 4WD
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Ford Explorer 2WD
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Dodge Caravan/Grand Caravan
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Chevrolet Blazer 4WD
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Ford F150 Pickup 4WD
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Chevrolet C1500 Pickup 2WD
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Ford Windstar FWD Van
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Who is eligible?
Owners of vehicles that:
The owner must be willing to scrap the vehicle; in other words, once the new vehicle is purchased, the "clunker" will go to the scrap yard. Therefore, if your vehicle is worth more than the $3,500/$4,500 offered by the program.
The program allows consumers to purchase a vehicle even if it is
not yet on the dealer's lot, but one that is already under production.
Since there has been heavy demand for some fuel-efficient vehicles
resulting from the program, many dealers have exhausted their
inventory. This will allow those dealers and their customers to
continue participating in the program, by purchasing vehicles already
in the manufacturer's pipeline. A signed purchase agreement is
necessary to obtain the rebate.
What do you get?
For passenger cars:
If the new vehicle has a fuel efficiency that is at least 4 MPG better than the one scrapped, but less than 10, then the owner gets a $3,500 credit for the purchase of the new vehicle;
If the new vehicle has a fuel efficiency that is 10 MPG or more better than the one traded-in, then the owner gets a $4,500 credit
For trucks, vans, SUVs (category 1 trucks):
If the new vehicle has a fuel efficiency that is at least 2 MPG better than the one scrapped, but less than 5, then the owner gets a $3,500 credit for the purchase of the new vehicle;
If the new vehicle has a fuel efficiency that is 5 MPG or more better than the one traded-in, then the owner gets a $4,500 credit
For trucks, vans, SUVs (category 2 trucks):
If the new vehicle has a fuel efficiency that is at least 1 MPG better than the one scrapped, but less than 2, then the owner gets a $3,500 credit for the purchase of the new vehicle;
If the new vehicle has a fuel efficiency that is 2 MPG or more better than the one traded-in, then the owner gets a $4,500 credit
What kind of vehicle can I buy (lease)?
No restrictions on the type of vehicle as long as:
It is more fuel efficient than the one being traded-in
For passenger cars, its combined fuel efficiency must be 22 MPG or better
For category 1 trucks, its combined fuel efficiency must be 18 MPG or bette
For category 2 trucks, its combined fuel efficiency must be 15 MPG or better
It MSRP (manufacturer suggested retail price) does not exceed $45,000
When can I buy (lease) the new vehicle to be eligible?
The program ran from July 24, 2009 through August 24, 2009 (originally it was set to expire on November 1, 2009). The program had a maximum budget of $3 billion, and expired as that maximum was reached prior to November 1, 2009 - meaning the program is expected to provide an incentive for the purchase of approximately 750,000 vehicles.
How does the credit get applied?
The dealer will process the credit once you make your purchase - you do not need to do anything. The purchase price will reflect the cash credit.
Is the credit taxable?
The credit is not considered income at the federal level, but you should check on its treatment at the state level.
Am I eligible for other dealer or manufacturer incentives?
Yes. Dealers have to use the government incentive in addition to their current program, not instead of.
What dealers are participating in the program?
Dealers need to be registered to participate; you can check what dealers are participating at: www.cars.gov.
For more information, you should visit the government's official site: www.cars.gov.