Cash for Clunkers Program

by Mr. H

It seems that the rebate that was received for the trade in under the cash for clunkers program was not a rebate ( free money ) after all, but it is actually considered taxable income.

But many of those cashing in on the clunkers program are surprised when they get to the treasurer’s office windows. That’s because the government’s rebate of up to $4500 dollars for every clunker is taxable.

“They didn’t realize that would be taxable. A lot of people don’t realize that. So they’re not happy and kind of surprised when they find that out,” Nelson said. ^{[ 1 ]}

Video link: http://www.keloland.com/videoarchive/
Listen to 0:40 carefully, “Rebate up to $4500 for every clunker is taxable.”

To make matters even more interesting, if the dealerships do not file the paper work on time, not only will you have a taxable income, you will have extra interest and penalties to contend with as well.

Nelson adds that if you did recently purchase a vehicle, ensure your dealer gets you the paperwork in time because if they don’t you could pay extra interest and penalties. ^{[ 1 ]}

And on top of all this; the worst part is that you most likely will get dined twice, taxed on the car you purchased and taxed on the rebate check as income as explained by Karl Denninger over at market-ticker.org.

When you buy a new car you pay tax on the difference between the new car’s purchase price and the trade-in you present to the dealer. This is an intentional distortion in the law that is intended to favor dealers over private-party used car sales; if you sell your used car privately the new buyer pays sales tax but you do not get the offset on the purchase of your replacement vehicle – the only way to get that is to trade the car.

Dealers use this, of course, in negotiations, effectively pocketing the sales tax – and why not? It’s a real difference to you!

But the “cash for clunkers” is not a trade-in. That’s a $4,500 check from the government, basically.

So you get nailed at least once and possibly twice. Specifically, you pay sales tax on the full vehicle price (effectively paying sales tax on the $4,500!) and what’s worse those states that tax income (that would be most of them!) might wind up counting this as income for state income tax purposes too, effectively taxing you twice.

…dealers had customers so giddy over the “free cash” that they were selling cars at full sticker price besides – effectively, in many cases, turning the entire “cash for clunkers” money into pure dealership profit and managing to charge you tax (twice) on it as well.^{[ 2 ]}

Like the old adage goes, the money has to come from somewhere – your pocket, and my favorite, if it sounds too good to be true, it usually is.

Sources

1. Some Surprised By ‘Clunker’ Tax
   by Shawn Neisteadt
   http://www.keloland.com
2. Government (And Car Dealers) Hose You Again
   by Karl Denninger
   http://market-ticker.org

Tags: free money, government, News, Obama, Obama Fraud, Politics, rebates, taxation, Taxes