Is the Cash for Clunkers Discount Taxable to You?

The Cash for Clunkers program was so popular with consumers that it was funded twice and yet still ended up being terminated a full two months before the intended deadline. The program sent a shot of adrenaline through the auto industry by creating huge price discounts. Now that the program has concluded, many are wondering if the discount is taxable as income.

The tax code has been called a crime against humanity by none other than former President Jimmy Carter. There are many problems with it, but one is the twisted logic that results in a saving being considered a gain. The classic example of this is the game show contestant. Let's say they go ahead and win the game. The money, cars, trips and other winnings are all nice and all, but they are also taxable. In fact, many winners end up selling most of the things they win to pay the taxes. They get to keep the rest, of course, so it is not all bad.

The Cash for Clunkers program provided a discount of $3,500 to $4,500 off the price of the vehicle in question so long as a number of parameters were met. I am going to assume you met those parameters since you got the discount and move on to the tax issue. The bad news is this price break is technically considered a gain for the car buyer under basic tax law. What exactly does that mean? It means that you should have to pay either a capital gain or income tax on the $3,500 or $4,500 price break you received.

Before you get red in the face, there is some very good news. Congress actually anticipated this problem [for once] and dealt with it. The Cash for Clunkers legislation includes a key paragraph noting that the price discount will NOT be considered a taxable gain in any way and the IRS shall not seek compensation for it.

It is always a blast to cruise around in a brand new car and just take in that new car smell. Now you can do it secure in the knowledge that your Cash for Clunkers discount won't end up costing you an arm and a leg at tax time.

Thomas Ajava writes for TaxBankruptcyAttorneySarasota.com - where you can locate a combination tax and bankruptcy attorney in Sarasota.