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Thread: Cash For Clunkers Payments Are Taxable

  1. #1

    Default Cash For Clunkers Payments Are Taxable

    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. We certainly didn't.

    Karl Denninger calls this hilarious, and explains the mix up:

    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.

    I should have probably done a Ticker on this originally, but I (naively) believed that most people understood how the tax system works when it comes to new and used car transactions. Apparently, from the referenced news article, this is not the case, and I bet the car dealers, incredibly ethical people that they are, were fully informing their suckers, er, clients of this little "feature" of that government handout too.

    PS: I have also received several emails informing me that 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. Ain't car dealers grand (several grand out of your pocket, that is!)

    Read the whole thing at Market Ticker →

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  3. #2


    anyone who participated in cash for clunkers got instant karma.
    rewritten history with armies of their crooks - invented memories, did burn all the books... Mark Knopfler

  4. #3


    Woot! You made my day. That should turn into a hornet's nest quickly.

    That might shut off some of the hand out greed.

  5. #4


    I'm really sorry for anybody who got suckered in with this deal but I'm also ROFLMFAO!

    Maybe one of these days soon a whole lot of people are going to figure out there ain't no such thing as a free lunch.
    Courage ~ Strength ~ Integrity
    RON PAUL 2012
    Visit Planet ToLive
    It's Thirteen O'Clock
    "I am surprised at the suddenness, as well as the greatness of this revolution. Is not the change we have seen astonishing? What man, two years ago, would have thought it possible?"
    - John Adams, July 3, 1776

  6. #5


    They'll probably blame free market capitalism and/or Wall Street.

  7. #6


    This was also a total windfall for the states. Govmnt gives away $4500 and the state of Minnesota picks up about $2000 in sales taxes. If the individuals now have to claim this as income, MN will pick up another $360 and the fed will pick up about $1500.


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