Cash for Clunkers

The Car Allowance Rebate System -- better known as CARS Act or "Cash for Clunkers" program -- is a new subsidy designed to help you trade in an old gas guzzler for a new, fuel-efficient vehicle. But is it really all it promises to be?

Or is it a lemon of a bill with little real value for most Americans?

Your car is an official "clunker" if:

It's not more than 25 years old.

Your combined city/highway mileage is 18 miles/gallon or less.

It's in driveable condition.

You can show that you've had it continuously registered and insured for at least a year. (That's to keep scammers from buying junk cars and trading them in.)

Your new car can cost up to $45,000. You can buy it or lease it. The combined fuel economy has to be 18 miles/gallon or more for trucks, or 22 miles/gallon or more for cars.So -- if you meet those requirements, and if you choose to participate, the dealer will credit you the the scrap value of the car, and the government will give the dealer a voucher to bring the trade-in price up to $3,500 (if the new vehicles combined fuel economy is 4-10 miles/gallon greater than your trade-in) or $4,500 (if your new vehicle's combined fuel economy is 10 or more miles/gallon greater than your trade-in). (There are different, less restrictive rules for trucks and SUVs.)

Notice I just said the government will give the a voucher. You don't actually get the cash -- the dealer gets the cash, so you don't have to finance as much, which makes it easier for you to qualify for the new car.But -- as dealers love to tell you -- this is a limited offer! Some dealers have already started ofering the vouchers, but the program ends on November 1, 2009.There are also strict dollar limits on subsidies for trucks -- just 7.5% of the total amount available under the bill. Once those subsidies are gone, they're gone!Want some good news?

The CARS Act specifically provides that the subsidy is not taxable income. And you can combine the "Cash for Clunkers" subsidy with other government programs, like the credit for hybrid vehicles and the new deduction for sales tax.In the end, the "Cash for Clunkers" program probably won't mean much for you. But buying or leasing a new car is an important financial decision, especially if you use it for your trade or business. So be sure to call us with your car and truck questions before you make an expensive mistake!