The Cash for Clunkers Bill

On June 19, 2009 Congress passed the Consumer Assistance to Recycle and Save (CARS) Act of 2009. President Obama signed the bill on June 24, 2009.

The CARS Act of 2009, also known as the Cash for Clunkers bill, provides consumers with an incentive (in the form of a $3,500 or $4,500 voucher) to trade in an old gas guzzler (foreign or domestic) against the purchase or lease price of a more fuel-efficient new vehicle. The purchase or lease must be made between July 1 and November 1, 2009. To qualify, a new vehicle lease must be for at least a 5 year period. The National Highway Traffic Safety Administration (NHTSA) is referring to this program as the "Car Allowance Rebate System" at their website www.cars.gov.

To be eligible for trade in, a vehicle must:

• Be drivable.
• Be continuously insured to the same owner for not less than a year at the time of trade.
• Be manufactured after 1984.
• Have a combined fuel economy value of 18 mpg or less.

The new vehicle must retail for less than $45,000 and must have a combined fuel economy value of at least 22 mpg for cars (18 mpg for category 1 trucks, which generally include SUVs, minivans, and pickup trucks, under 6,000 pounds).

Under the terms of the program, an electronic voucher will be issued directly to participating dealers that may be used to offset the purchase or lease price. The voucher will be worth:

• $3,500 if the combined fuel economy value of the new vehicle is at least 4 mpg higher than that of the eligible trade-in (if the new vehicle is a category 1 truck, the combined fuel economy value must be at least 2 mpg higher than that of the eligible trade-in vehicle).
• $4,500 if the combined fuel economy of the new vehicle is at least 10 mpg greater than that of the trade-in car (if the new vehicle is a category 1 truck, the combined fuel economy value must be at least 5 mpg higher than that of the eligible trade-in vehicle).

Since the dealer accepting the trade-in must destroy the vehicle, the only trade-in value of the vehicle will be the voucher value. As a result, the owner of a vehicle with a trade in value greater than the voucher amount will not benefit from the program.

Note: Special rules apply to certain categories of heavier trucks.

From the AICPA