Greetings,

 

 

The President recently signed legislation that gives a cash incentive for individuals and businesses to trade in older gas-hogging vehicles for new, more fuel-efficient ones. The incentive takes the form of a voucher of $3,500 or $4,500 depending on the type of vehicle traded in and the fuel efficiency of the vehicle purchased. The new vehicle would have to be purchased between July 1 and November 1 of 2009. The $3,500 or $4,500 vouchers are not taxable to the recipient.  Although the program started July 1, the government just released detailed rules and forms.  Here are some details:
 
Under the Consumer Assistance to Recycle and Save (CARS) Program, electronic vouchers may be issued to offset the purchase price of a "new fuel efficient automobile" upon the surrender of an "eligible trade-in vehicle" to a "dealer" participating in the program.
 
To qualify for a voucher, the vehicle turned in must be scrapped, and the new vehicle must achieve greater fuel efficiency than the vehicle turned in.
 
The incentive takes the form of a voucher, which consists of an electronic payment by the government directly to the dealer.  The purchase or lease price of the new vehicle is reduced by the amount of the voucher.
 
The gross income exclusion applies without regard to the amount of the taxpayer's income.  That is, there is no phaseout rule that would reduce or eliminate the exclusion if the taxpayer's income exceeds a specified threshold level.
 
A dealer participating in the program may not charge a person purchasing or leasing a new fuel efficient auto any additional fees associated with the use of a program voucher.  There are other restrictions on the dealer, such as having to scrap the traded-in vehicle, except for certain salvaged parts.
 
A total of $1 billion (including $50 million for administration) has been allocated to the program.  The total number and value of vouchers issued under the program may not exceed the amount appropriated for that purpose.  Thus, $950 million ($1 billion - $50 million) worth of vouchers may be issued under the program.  This means about 250,000 car buyers can benefit from this program.
 
A "new fuel efficient automobile" is a "passenger automobile" or a category 1, 2, or 3 truck as defined below: 

1. the title of which hasn't been transferred to any person other than the "ultimate purchaser" (the first person who in good faith purchases the vehicle for purposes other than resale);
2. that carries a manufacturer's suggested retail price of $45,000 or less;
3. that meets certain certification standards; and
4. that has the combined fuel economy (CFE) of at least: