Whoops! Cash For Clunkers Payments Are Taxable!

The Business Insider ^ | Aug. 25, 2009, 2:19 PM | Jay Yarow

[rawhide]

Some of the drivers that bought new cars through cash for clunkers are learning that it wasn't quite the deal they hoped for.

Keloland Television: 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.

We imagine that MOST people didn't know the rebates were taxable...

...The amusement here is how most (if not all) states compute sales tax (charged when you register the vehicle.)

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.

[Prokopton]

LOL! The people who offered and took advantage of this program really weren’t thinking, were they?

Yep, not like those 'mart people who are still driving their clunkers. They're so 'mart they probably don't even realize that there is no tax on consumers who used the clunkers program. SHHHH. Don't tell them, it might get in the way of there envy.

[Reagan is King]

I heard on the radio today that a lot of people are already regretting their decision to buy into the "Clunkers" program. They now have car payment (again!), higher insurance, and that new car smell is wearing off fast. On top of that they were taxed on their "rebate"!

Suckered in by Barry Hussein one more time...

[Revel]

In the closed thread it says something about fixing this.

Personally I think that anyone who used this program is a socialist and should be taxed to the hills. I am not happy to have anything to do with buying them a car. They will have some of the blood of the fall of the economic system on their hands.

[SuperLuminal]

Anybody who thought it would be otherwise is the walking example of the morons who think government deathcare will offer choices and reduce costs!

[GOPJ]

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.

Do you have to claim it as income on your federal tax return too?