“Oh, auto buyer, let me count the ways to the tax savings”

 

DISCLAIMER: This ezine was written before the program’s funding was put in jeopardy. Be aware that the funding of this credit is not guaranteed. And to date, the program is proving to be very popular.Saving taxes, stimulating the economy, and getting inefficient gas guzzlers off the road sounds great. And what is even greater are the tax incentives to motivate the consumer to buy now rather than later.When you combine the benefits of the “Cash for Clunkers” program, the changes made to the Car Sales and Excise Tax Deduction, in combination with the Energy Tax Credit for Hybrids, it’s like a trifecta. Consider a car that gets less than 18 m.p.g., maybe an older sports utility vehicle (SUV,) that gets 15 m.p.g. (on a good day.) Let’s say you trade it in for a brand new car, possibly a $30,000 Ford Hybrid Escape 4 Door that gets 28 m.p.g.With all the tax breaks available right now, and assuming a federal tax rate of 28%, you could save $7,206! Sure takes a big bite out of that $30,000 price tag. And this calculation does not consider any accelerated deprecation for business use, or the fact that you actually get the scrap value for your Clunker.Ready to roll?
Here is what you need to know about the “Cash for Clunkers” program:

– The car purchased must be “new” as in you are the first owner.
– And the car to be replaced, or the “old” car, must be less than 25 years old, have been insured and registered in the prior year and must be demolished.
– Also, the “old” car must get less than 18 m.p.g. Not tough to do in a sports utility vehicle. And, yes, the Escape Hybrid gets 28 m.p.g. according to www.fueleconomy.com, which is where you should go to find the government-approved mileage rating for your car.
And the benefit is that you pocket $4,500 in tax credit. If the difference in mileage is less than 10 m.p.g. then the tax credit is only $3,500.

Here is what you need to know about the Car Sales and Excise Tax Deduction changes:

– If you don’t itemize, you can still take the deduction above and beyond the standard deduction.
– Total sales price is limited to $49,500. Yes, the Escape Hybrid runs around $30,000.
– There is phase out for single filers with income of $125,000-$135,000 and married filing jointly filers with income of $250,000 – $260,000.

This is a significant deduction. For example, if you live in Mill Valley, it is a $2,700 deduction (9.0% sales tax rate of a $30,000 purchase price) representing a $756 of tax savings if you’re in the 28% tax bracket.

Finally, here is what you need to know about the Entergy Tax Credit for Hybrid:
– Since the Escape is a Hybrid, you also get a $1,950 Hybrid tax credit for the 2009 model as long as the funds remain for this tax credit.

That’s how you get a new car and some major new tax deductions.

For complete information on the Cash for Clunkers program, or as it is known to the politically correct, the Cars Allowance Rebate System, go to www.cars.gov. It’s a government program, so there are lots of rules.

One more important piece of information – if a new car makes sense for you; turn in your Clunker soon. The Cash in the program is limited, and when the first billion or so is gone, Congress may not replenish the program with more cash for more clunkers.

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