Get A Nice Deduction With Your Clunker Cash


Did you recently trade in your gas-guzzling junker for a sweet new ride using the popular “Cash for Clunkers” rebate program?  Not only did you save big at the dealer when you swapped your tin lizzie for a new car, you can save even more moola by combining the rebate with other state and federal tax incentives, such as the hybrid vehicle credit.

Remember the Alternative Motor Vehicle Credit discussed some time ago here at the Daily Deduction? You may recall that this little tax gem allows you to earn tax credits by buying a hybrid car.  To promote the purchase of more fuel-efficient vehicles, Congress offers car buyers a tax credit for certain cars that saved on gas, and the amount of the credit can exceed $3,000.  Separate credits apply to four distinct vehicle categories: hybrid vehicles, fuel cell vehicles, alternative fuel vehicles and advanced lean-burn technology vehicles, so you have a number of choices. You can find a list of the eligible cars and the amount of the credit for each car at the IRS Web site.

But that’s not all.  If you have recently purchased a hybrid car, or if you plan on purchasing one soon, you might be able to cash in your clunker too.  For those still not in the know, the “Cash for Clunkers” program, or more formally, the Car Allowance Rebate System (CARS), offers owners of cars and trucks a $3,500-$4,500 rebate to trade in their old jalopies for new, more fuel-efficient vehicles.  The program was designed to help get the auto industry moving again while simultaneously removing carbon-spewing beaters from the road.  The rebate is applied at the time of purchase, so buyers don’t have to wait for any paperwork to process.  Furthermore, the CARS Act explicitly states that the credit is not considered income for the consumer, so you don’t have to claim it on your 1040 form.

Rules and restrictions apply to the CARS program, so check to make sure both your old car and your new car qualify for the rebate.  For up-to-date information, you should check out the program’s Web site at to find participating dealerships and to figure out whether your car qualifies.  Then, using the IRS’s hybrid car list, make sure you find out exactly which new car you need to buy in order to receive both the CARS rebate and the hybrid car tax credit.

With the government offering both a great tax break and a fantastic rebate to entice you buy a new car, why not take full advantage of everything that Detroit and the government have to offer? With dealership and government rebates, tax incentives and a little footwork, you can swap your current wreck for a ride that will not only leave a greener footprint, but will look sharp on the road as well.

-Want to save more green on other stuff too? Don’t forget to check out our complete archive of Daily Deductions.

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