Tax

Drive away in a new car with help from Uncle Sam
 
Published Monday, August 17, 2009 7:00 am

by Mary Gelinas, CPA



Drive away in a new car with help from Uncle Sam

Are you driving a clunker? You may love your vehicle, but if it gets less than 19 miles to the gallon, the federal government would like to see it taken off the road. But don't be alarmed, you could wind up with a new vehicle and save as much as $4,500 in government rebates in addition to dealer and manufacturer incentives. You'll need to act fast, but if your vehicle qualifies, this could be a great opportunity for a low-cost upgrade. 

 

 

The CARS program that President Barack Obama signed into law on June 26 has several objectives: stimulate the slumping U.S. automobile industry, help reduce air pollution, and cut this country's dependence on foreign oil.

 

 

The Obama Administration has set aside $1 billion to retire as many as 250,000 vehicles that it deems "clunkers" in a short period of time. The National Highway Traffic Safety Administration (NHTSA) currently is working out the details of the program. According to the CARS.gov Web site, the program will not be fully running until late July and will continue until November 1. It could end sooner if the designated funds run out.  

The Ubiquitous "Buts"

   Few laws are passed without some debate and CARS is no exception. Here are some of the caveats, concerns, and criticisms that have been expressed.
   The Transportation Department enthusi-astically supports the law, but the agency has also stated that its biggest challenge will be in preventing fraud in trying to get the rebates.
   Rae Tyson, a spokesman for the NHTSA (the federal agency overseeing the program) warns: "We are putting out a concerted effort to make people aware that there is only one official Web site for this program, and it is CARS.gov. Some Web sites give the impression that they have an official connection to the government rebate program and may ask the consumer to provide detailed personal financial information." He cautions that if you receive a call urging you to sign up to get the rebate, chances are it is a scam.
   Once the details of the program are completed, Tyson says, the regulations will address potential fraud issues on both sides of the transactions. For example, regulations will help ensure that dealers cannot attempt to resell rather than destroy vehicle engines taken in through the program. In addition, there will be tight guidelines to bar consumers from getting more than one rebate on the same car.
   Critics of the program have suggested that car buyers will have to wait to find out if the NHTSA approves their purchase and will have to return to the dealership to complete the transaction. Tyson disagrees, saying that at the consumer end, the deal will seem like any other car purchase.
   Meantime, some industry observers have expressed doubt that the program will produce real change. They say that the program will likely replace only 10 percent of the Obama Administration's goal to get 250,000 clunkers off the road.

There has always been some truth to the saying "perfect is the enemy of good." In these tough economic times that saying may be more true than ever. For instance, waiting for the "perfect" opportunity could mean you miss out on a simply good chance to improve your business. In general, the shorter the time between getting an idea and implementing it, the more innovation is encouraged.  When you hunt for perfection, ideas can get bogged down and die. Sometimes  a little less perfection brings a lot more good.

 

 

If you think your car or truck might be a clunker, here's what you need to know about the program:

  • First, go to CARS.gov to find out if your car or truck qualifies. You'll need to enter the year, make and model of your vehicle. If your vehicle gets less than 19 miles to the gallon (combined city/highway driving) and is no more than 25 years old, it may qualify if it meets other criteria.
  • If you buy a new vehicle that gets an estimated four more miles to the gallon than your old car, you may qualify for a $3,500 rebate. If you buy a vehicle that gets an estimated 10 miles more to the gallon you may qualify for the maximum rebate of $4,500.
  • You do not need to do anything before buying the new car to qualify. (See sidebar for an important fraud warning from the NHTSA) CARS.gov does, however, advise buyers to contact dealerships before shopping to be sure they plan to participate in the program.
  • The NHTSA approves the purchase and pays the voucher amount directly to the dealership. 
  • Dealers must destroy cars exchanged for rebates. You have no obligation in that part of the program.

Here are a few questions and answers to help clarify whether your vehicle will qualify.

Q. My car meets all of the qualifications, except it quit running and isn't worth fixing. Can I have it towed to the dealership?

A. No. Eligible cars must be in "drivable condition." If the car is otherwise qualified, the benefits of the program may outweigh the cost of having it repaired.

Q. I have an old car that is registered as non-operational, but the insurance has lapsed. It is still drivable. If I reinstate the insurance, can I trade it in for a rebate?

A. No. A car must be both registered and "continuously insured" by the owner for a full year preceding the trade-in.

Q. My car meets the requirements, but I'd prefer to lease a new car. Can I still get the rebate?

A. Yes, if the lease period is at least five years.

Q. Can I trade my clunker in for a rebate towards the purchase of a demo car?

A. Yes. By definition, a demo is a car that has never been titled, therefore it is considered a new car.

Q. My wife and I have three cars that qualify. Can we get three rebates?

A. No. The law states that "not more than one voucher may be issued for a single person and not more than one voucher may be issued for the joint registered owners of a single eligible trade-in vehicle."

Q. My son and his fiance each have clunkers that qualify, registered in their own names. Can they turn in both cars toward the purchase of one new car and receive two rebates?

A. No. Only one voucher can be applied to the purchase or lease of a single fuel-efficient vehicle. 

Q. What will prevent a car dealer from raising the price of a new car to absorb some or all of the credit?

A. CARS prohibits participating dealers from adding fees to the purchase or lease price of vehicles in the program.

Q. Is the rebate in addition to manufacturer and dealer discounts and rebates?

A.  Yes. Any other rebates and discounts that are available will not be affected by the government rebate.

Q. In addition to the credit, can I also get the trade-in value of my vehicle?

A. No. Since your vehicle must be destroyed, the only available value is the scrap value. The dealer is required by law to provide you with an estimate of the scrap value of your trade-in. You may be able to negotiate with the dealer to receive the scrap value.

Q. If I use a voucher to buy a hybrid or a lean-burn diesel car, can I still qualify for the tax incentives available to those who purchase those vehicles?

A. Probably. The regulations state that the "availability or use of a federal, state, or local incentive or a state-issued voucher for the purchase or lease of a new fuel-efficient automobile shall not limit the value or issuance of a voucher under the program..."

As the federal government hammers out the details of this program, many questions remain unanswered. By visiting CARS.gov, you can sign up for e-mail updates. Whatever you believe about climate change, few disagree that we need to reduce our dependence on foreign oil and our carbon emissions. According to fueleconomy.gov, every gallon of gas a car burns emits 20 pounds of carbon dioxide into the atmosphere. Moreover, greater fuel efficiency is in the best financial interests of all businesses and households.


Marie-Claude Gelinas, CPA (Mary) is a Manager in the Tax Services Department and is based in our Jupiter office. She focuses on small to medium sized closely-held and family-owned businesses.  Mary helps business owners reduce their total tax liability and acts as a supplement to companies' internal bookkeepers and accounting staff, providing such consulting services as retirement planning, expense reduction, employee retention strategies, technology analysis and accounting system streamlining. Her primary function is to enable business owners to focus on operational and strategic decision-making concerns by providing them with historical and prospective financial data on a timely basis. 


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