Several blogs have posted that the recent “clunker” rebates are taxable.  Right Wing News writes, “Yep, you read that right. In many states car buyers that turned in their “clunkers” for up to $4,500 off the cost of a new car are finding out that they have to pay state sales tax on the $4,500 too. And still others just might find out next year that they’ll have to pay income tax on that “free” government money. “

It’s true that the clunker money is subject to sales tax in most states.  The government’s official website for the CARS program clearly states in the FAQ section that the CARS credit may be subject to sales tax and encourages customers to check the laws in their state or to consult with their tax advisor. 

Why is the clunker money taxable?   The clunker credit is a REBATE.  Rebates, by definition, come off the bottom line - after taxes have been assessed on the selling price of the car.  The cash rebates offered frequently by the car manufacturers work the same way.  So do rebates on other products like soda, toilet paper and refrigerators.  Look at your grocery store receipt the next time you use a rebate coupon.

Perhaps the confusion stems from the fact that most people perceived the clunker money as a trade allowance instead of a rebate.  In most states, the sales tax on a car is assessed on the sale price minus the trade allowance (the amount the dealer gives you for your old car).   For example, if you purchased a new car for $20,000 and traded in your old car for $4,500, you would only pay sales tax on the difference of $15,500.  With the clunker rebate, you pay sales tax on the full $20,000, and THEN the $4,500 rebate is applied. 

The claim that consumers will have pay income tax on $3,500 or $4,500 rebate is completely FALSE!  The official CARS government website explicitly states that the CARS credit is NOT considered taxable income for the consumer.  It is, however, considered part of the dealer’s gross income.

Unfortunately, some blogs are spreading mis-information about the clunker program in an attempt to schmear the current administration as well as bash the car dealers.   Politics aside, I hope this post sets the record straight and eases people’s minds about the clunker money and taxes.

Should I buy a new car or a used one?  This is an age-old car buying dilemma for most consumers.  Most financial experts say that it’s always smarter to buy used.  Let someone else pay that initial depreciation!  Seems like a pretty easy decision, huh?  Unfortunately, like most things in life (and the car business), it’s more complicated than that.  Here are six factors to consider when deciding between new vs. used:

1.  Your Budget – Your budget may make the decision for you.  If you can only afford a $10,000 car, you will most likely have to buy used.  While you can occasionally find new cars in this price range, you will end up with a base model econo-box with poor quality ratings and minimal convenience options and safety features.  You are better off buying a used model that was a safe, reliable vehicle to begin with.  Don’t be tempted to buy new and use a long loan term to fit the monthly payment into your budget – that can get you in financial trouble and cost you much more in the long run.

2.  Depreciation – The average vehicle depreciates at least 20% in the first year of its life.  Some vehicles depreciate as much as 40% or more (i.e. Range Rovers, Escalades, and pretty much anything wearing a GM or Chrysler badge these days).  Other vehicles, like Hondas and Minis, hold their values very well.  If your desired vehicle has a high depreciation rate, then it makes sense to buy “slightly used” and save yourself a good chunk of change.  However, if your dream car holds its value exceptionally well, then you might want to pay just a couple thousand more for a new one with a full warranty.

3.  Availability - If you want a model that just came out, then you will obviously have to buy new.  But, if you are considering one that has been out for at least a year, then check the availability of used models in the secondary market.  In today’s economy, people are holding on to their vehicles, which is reducing the supply of used cars on the market and increasing used car prices.  Some models are hard to find and priced so high, that it makes more sense to buy new.  However, if you are looking for a model that is popular with the rental car companies, then you should have plenty used ones to choose from.

4.  Interest Rates – Finance rates for used car loans are typically 2 points higher than for rates for new cars.  Why?  Because banks consider used cars to be a higher risk.  If you are considering a “slightly” used car that holds its value well, do the math to calculate the total cost of financing the car over time and see if buying used will really save you money. 

5.  Risk – No matter what, buying a used car comes with some degree of risk.  A used car, by definition, has been subjected to a certain amount of wear and tear, not to mention someone else’s driving and maintenance habits.  Some vehicles have spent most of their life on the highways, others in more strenuous stop-and-go city traffic.  Some vehicles have been garaged and maintained religiously according to the owner’s manual.  Others have been left out in the elements and have never tasted fresh oil.   While a Carfax report may reveal obvious signs of abuse such as accidents, theft and flood damage, it may not show everything - especially if the “accident” was between the car and its owner’s mailbox. 

6.  Maintenance Costs - The maintenance required during the first year or so of a vehicle’s life is usually limited to oil changes, tire rotations and other relatively inexpensive items.  Some manufacturers even cover the cost of these routine maintenance items for the first few years.  A used vehicle, on the other hand, may require the replacement of more expensive parts such as tires, brakes, a battery or worse.   When you purchase a new vehicle, those expensive repairs often don’t come along until you have already paid off the vehicle loan (assuming you financed it properly).  On a used vehicle, expensive repairs can pile up on top of your monthly loan payment, straining your budget.  And, by the way, most repairs are “routine maintenance” and are NOT covered by an extended warranty.

Ultimately, the decision to buy new or used comes down to what you car love, what car you can afford, and what will give you peace of mind.

Still not sure which way to go?   Call Women’s Automotive Solutions for a complimentary consultation.  We’ll look at your unique situation as well as the current car market to help you decide which option is right for you.  And, no matter which way you decide, Women’s Automotive Solutions will get you the best deal!

The Senate approved the extension of the Cash 4 Clunkers program today in a 60 - 37 vote.  President Obama gave it his official signature shortly afterwards, funneling an additional $2 billion into the program. 

Over 220,000 new vehicles have been sold under the Cash 4 Clunkers program since it officially began on July 1st, with the top seller being the Toyota Corolla.  Opponents of the program expressed concern that it would favor the Asian automakers, but approximately half of the vehicles sold so far have been American brands.

Not sure if the vehicle you have qualifies as a clunker?  Not sure if the new vehicle you WANT qualifies under the program?  The official CARS site (www.CARS.gov) has a nifty (if somewhat slow) tool that will tell you!  Check it out the CARS eligibility calculator at http://www.fueleconomy.gov/feg/CarsSearchIntro.shtml

If you do take advantage of the program, be prepared for extended wait times at the dealerships, which have been overwhelmed by the demand.  Also be prepared to provide additional paperwork, including the title to your clunker , your current registration card, and a detailed letter from your insurance company proving that the vehicle is and has been properly and continuously insured.  

Don’t want to spend hours at the dealership?  Want to get MORE than just the $3500 or $4500 rebate?   Let the car chicks at Women’s Automotive Solutions car buying service help you get the best deal without all the hassle! 

It looks like the wildly popular Cash 4 Clunkers program may continue - at least for a little while.  The House voted late Friday to funnel an additional $2 billion into the program.  (This may be the fastest bill ever passed by Congress!)  However, it still has to pass in the Senate this week, where Republicans who oppose the program may try to kill it.  If approved, tThe funds would be diverted from an energy program that was part of the economic stimulus package approved earlier in the year.  How long will this $2 billion last?  Who knows. 

If you have a clunker to trade in on a shiny new, more fuel-efficient model, contact Women’s Automotive Solutions car buying service  today, and let us help you get the best deal - no matter what the government decides!