The Cash for Clunkers program starts July 1st and ends November 1st 2009, or whenever funds run out, whichever happens first. The entire program is centered towards scrapping the old gas guzzlers and protect environment by destroying these clunkers and provide better cars to the consumers. Eligible cars (clunkers) can be traded in for a voucher redeemable toward the purchase of a new, more fuel efficient vehicle. Vouchers are worth either $3,500 (or $4,500 if the new car is 10 mpg higher than the trade-in)
Small businesses can take advantage of the Cash for Clunkers Program by trading in their work truck and buying another qualifying vehicle or taking up a five year auto lease contract. Generally, to qualify for the credit under this program your vehicle must be:
• manufactured less than 25 years before the date you trade it in and, in the case of a category 3 vehicle, must also have been manufactured not later than model year 2001
• get 18 miles a gallon or less.
• be drivable.
• registered to the same owner for atleast a year and
• insured for the past year.
When you apply for the program, you initially will receive $3,500(or $4,500) voucher towards your new fuel saving vehicle. You won’t actually receive the cash value of the vouchers in hand. Instead the government will provide the credit to the dealership where the qualifying new vehicle is being purchased or leased electronically. This credit will be applied towards all or part of the down payment. Note that the new vehicle must have a sale price of $45,000 or less and get at least 22 mpg.
Before you apply for this program: DO YOUR HOMEWORK!
1. Evaluate your decision – The voucher value replaces the trade-in value, and does not add to the trade-in value. Hence the small businesses should evaluate their decision on whether to utilize the voucher program based upon the value of their trade-in vehicle. If the trade-in value is greater than the voucher amount, it may not be beneficial to apply to this program for your old vehicle. On the other hand, if it is worth less, then you certainly will want the higher voucher value.
2. Consider the tax impact -The vouchers are not treated as taxable income. They take the place of your trade-in value. Hence a business that utilizes the voucher program is treated as if it traded in the old vehicle and received zero for it. Its basis in the new vehicle would be the amount paid net of the voucher and any other rebates. There is no tax due on trading-in their old vehicle for new under this program.
3. Compare Scenarios – In fact for a business, it may be more beneficial to use the voucher program and defer taxes rather than selling the old vehicle (which is fully depreciated) for a price equal to or less than the credit amount and paying taxes on the gain on sale of the vehicle. Hence, tax impact on sale of old vehicle versus trade-in needs to be considered too.