Taxes 
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Cash for Clunkers Tax Rules

If you took advantage of the Cash for Clunkers program to buy yourself a brand new vehicle, you might be wondering about how you deal with the taxes involved in getting that $3,500 or $4,500 voucher. The IRS isn’t in the business of letting you get something for nothing!

Federal Taxes

You might be surprised to learn that there are no federal tax consequences. The IRS does not consider the voucher as income so you won’t need to pay any taxes on it. You can also take advantage of any State and Federal tax incentives for buying hybrid vehicles, the Cash for Clunkers voucher doesn’t cancel that out (something the dealer probably told you if you purchased a qualifying hybrid vehicle). For a full list of those vehicles, as well as how much of a credit you receive, visit Fueleconomy.gov’s Energy Tax Credits for Hybrids page.

State & Local Taxes

You may have to pay taxes to the state or local government on the tax voucher though. For example, in Maryland, you pay a 6% sales/excise tax on the price of a car when you register it. If you purchased a car with a voucher, you have to pay the 6% tax on the full purchase price of the vehicle including the voucher. So on a $3,500 voucher, Maryland residents pay $210. On the $4,500 voucher, Maryland residents pay $270. The voucher is not recognized as income in the state of Maryland, but you still pay taxes through sales tax.

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 Your Take 
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Your Take: Isakson’s $15,000 Homebuyer’s Credit

Colorful Houses along the White Oak Bayou in HoustonIf you’re signed up for the Bargaineering newsletter, I included a mention of a potential $15,000 homebuyer credit in the latest Thursday email. The $15,000 homebuyer’s credit was introduced by Senator Johnny Isakson (GA-R) that would increase the current $8,000 first-time homebuyer credit to $15,000 and could be used by anyone who bought a primary residence, not just first-timers. Another crucial change would be the removal of the current income limits. Isakson played a big role in getting the first $8,000 homebuyer credit into law. The logic behind this increase is in stimulating the “move-up market.” That is, those going from their first home to their second home. This US News article has more “expert” opinion on the subject if you’re interested, but I wanted your opinion.

My feelings about this potentially new credit are mixed. On one hand, I recognize the importance of stimulating the housing market. On the other, it’s another $32 billion of spending. What’s $32 billion in a budget of trillions? :)

I don’t like the slippery slope we’re going down. First we had the first-time homebuyer loan, then the $8,000 homebuyer credit, and now potentially a $15,000 homebuyer’s credit – all benefiting the housing industry. We have the cash for clunkers program, which recently passed both chambers of Congress and will likely be signed into law soon, which benefits the auto industry. All these programs to spur spending, which is important during a recession, but is it the right thing to do?

What do you think?

(Photo: billtex48)


 Cars 
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comments

Cash For Clunkers Program

Beater Used CarUpdate: The bill has passed both chambers of Congress, getting through the Senate on Thursday, and President Obama is expected to sign it into law soon.

The Cash for Clunkers program would provide a voucher worth $3,500 to $4,500 to consumers trading their vehicles in. The vehicles have to be in running condition and get less than 18 miles a gallon in fuel efficiency. The value of the voucher is determined by this schedule:
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