On July 24, 2009, the final regulations were released for the Cash for Clunkers Law, officially known as the Car Allowance Rebate System. Cash for Clunkers allows you to trade in your used car if it gets poor gas mileage for a new more fuel efficient car, along with up to $4500 from the federal government. To get a basic understanding of Cash for Clunkers, read my overview of the law as originally passed.
What follows are some highlights of the law that were finalized and not previously reported. Among the most interesting aspects are those dealing with the impact of the new law, definitions of insurance, and drivable condition, among other things.
The complete final regulations are available for download at www.cars.gov.
Important parts of the regulations
- Only one rebate per consumer
- The money may be taxable!
- Combined fuel economy on the old car is 18 mpg or less. On the new car it's 22 mpg or more.
- Vehicle has to be insured for a year (but it could be by somebody different than the seller)
- Car has to be drivable, but the law is kind of vague on what drivable means.
- The new car can cost more than $45,000, which is a change most people don't know about.
Only One Shot
The CARS Act specifies that each person may receive only one credit and that only one credit may be issued to the joint-registered owners of a single trade-in vehicle under the program. Consequently, a person may participate in a transaction that receives a credit under this program only once.
By the way, the money is taken off the bottom line price of your new car. You never actually see the money. The dealer gets it.
Rebate Taxable?
The use of the term “rebate” in the name NHTSA has chosen for the program is not intended to have any effect on how CARS transactions are treated under State or federal tax laws. (In other words, it could be considered income.) The CARS Act provides that the credit is not income to the purchaser, but does not address any other possible tax issues, which means the IRS could disagree. So, when tax time comes, check with an accountant!
Vehicle Must Be Insured
The Act’s one-year insurance requirement is satisfied so long as the trade-in vehicle is insured, irrespective of the identity of the person holding the insurance policy.
Drivable Condition
The agency intends that “drivable condition” be demonstrated by several means. First, it must be confirmed by the trade-in vehicle being operated, under its own power, by the dealer on public roads on the date the vehicle is traded in. The dealer must then certify to the operation of the vehicle when it submits its request for reimbursement. Separately, the person trading in the vehicle must certify that it is in drivable condition. This latter certification also must be submitted by the dealer with its application requesting reimbursement.
Combined Fuel Economy
The specified combined fuel economy rating of 18 mpg or less for the trade-in vehicle (excepting category 3 vehicles) is implemented throughout sections 599.300(f) and 599.300(g). Under the Act, combined fuel economy for an eligible trade-in vehicle is defined as the number posted under the words “Estimated New EPA MPG” and above the word “Combined” for vehicles of model year 1984 through 2007, or posted under the words “New EPA MPG” and above the word “Combined” for vehicles of model year 2008 or later on the fueleconomy.gov website of the Environmental Protection Agency for the make, model, and year of such vehicle to see if your car is eligible.
EPA changed the way it calculated fuel economy ratings starting in Model Year 2008, and has estimated the revised ratings for Model Years 1985-2007. Therefore, as described above, eligibility is determined by the revised ratings rather than the original EPA sticker on the vehicle.
Price of New Vehicle
The new vehicle must also have a manufacturer’s suggested retail price (MSRP) of $45,000 or less to be eligible for purchase or lease under the program. The agency interprets this requirement to be the base MSRP—the price on the Monroney label affixed to the vehicle before any dealer accessories, optional equipment, taxes or destination charges are added to the price. This interpretation is consistent with the Automobile Information Disclosure Act, which identifies the retail price separately from the retail delivered price with optional equipment.
Lease Vehicles Allowed
The CARS Act allows the new vehicle to be either purchased or leased. In the case of a lease, the Act requires the lease to be for a period of not less than 5 years. Additionally, the agency has added a definition of “lease” in section 599.102, specifying its minimum duration and making clear that a lease that incorporates a balloon payment at any time prior to five years does not meet the statutory requirement.
Registration
The requirement that the trade-in vehicle be registered to the same owner for a continuous period of one year prior to the transaction requires clarification. The agency interprets this provision as requiring the trade-in vehicle to be registered to and owned by the person purchasing or leasing the new vehicle under the program. In a transaction involving more than one person, the trade-in vehicle must have been registered to and owned by at least one of the persons purchasing or leasing the vehicle under the program.
The agency has determined that proof of registration may be demonstrated by any of the following:
- a current State registration document or series of registration documents in the name of the purchaser evidencing registration for a period of not less than one year immediately prior to the trade-in;
- a current State registration document showing registration in the name of the purchaser and a document of title that confers title on the purchaser not less than one year immediately prior to the trade-in;
- or a current State registration document showing registration in the name of the purchaser and a document from a commercially available vehicle history provider evidencing registration for a period of not less than one year immediately prior to the trade-in.
