Cash for Clunkers and Your Car Insurance


If you’re thinking about turning in your gas-guzzling 1993 Buick Roadmaster and taking advantage of the federal government’s cash for clunkers program, good for you. That’s a hefty, tax-free incentive to buy a new car. Be advised, however, that while Cash for Clunkers doesn’t count as income on your federal taxes, your state and local tax situation may be different.

As of this post, consumers can still take advantage of Cash for Clunkers, also known asthe CARS Act (aka Car Allowance Rebate System). The government program funds $3,500 to $4,500 discounts for the trade-in of qualified vehicles when your purchase or lease a new car. Which amount you qualify for will depend on the type of vehicle you purchase and the difference in fuel economy between the new ride and the trade-in, according to the government’s official Cash of Clunkers website, which also points out the different rules apply for work trucks. And, since car dealers are car dealers, there may be additional dealer incentives on top of that.

The problem is that the rules for which clunkers qualify for Cash for Clunkers has shifted. The EPA changed the published fuel economy on vehicles. So some people whose clunkers had qualified at 18 mpg maximum fuel-efficiency found they’d been shut out when the EPA readjusted their mpg to 19. If you’re among those who was squeezed out of the Cash for Clunkers program by the EPA shift, you can try to get recourse by contacting the National Highway Traffic Safety Administration, the government agency responsible for administering the CARS program.

It’s also recommended that before you drive to the dealership, check out if your vehicle qualifies for Cash for Clunkers at, which appears to be maintaining an up-to-date listing of eligible vehicles.

Another thing to be aware of is that there’s some retroactivity built into the Cash for Clunkers program. If you bought or leased a new car on or after July 1, 2009, and turned in a qualifying vehicle in trade, return to your dealership to complete the paperwork and get your rebate.

Also, be sure to shop around for auto insurance quotes for your new vehicle. The clunker you had probably had much cheaper insurance premiums, so don’t be shocked when insurance is higher on your new purchase. Be an informed insurance shopper and make sure you compare auto insurance quotes.

Finally, if you’re thinking about hauling in some hunk of junk to take advantage of your Cash for Clunkers rebate, think again. The car has to be registered to you and in operable condition.

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