Money Management

How to Buy a Car Using
Government Programs in 2009

Learn how to buy a car while taking advantage of government programs in the United States. (***if you live in a different country check out the note below).

All the conventional wisdom on how to save money when buying a new car still applies in the radically changed automotive climate in the United States. For instance, you still need to do your research to determine a fair price. You want to comparison shop and use competition among dealerships as leverage for a better deal, and you want to make sure your financial house is in order before getting a car loan. For 2009, however, there are two new considerations for car buyers, thanks to the federal stimulus package, that can make a big impact on traditional sticker shock.

Take advantage of new vehicle tax deductions available through January 1, 2010.

Under the current federal stimulus legislation, new car buyers who make a purchase between February 17, 2009 and January 1, 2010 can get a deduction on their 2009 tax returns -- the ones they will file in 2010. The deduction is available to families making less than $260,000 and single individuals making less than $135,00 annually.

The amount of the deduction is equal to the amount of state and local sales and excise taxes paid on a vehicle purchase up to $49,500. (Drivers can spend more, but can only claim a deduction up to the set limit.) The deduction can be used for qualifying domestic or foreign cars, light trucks, SUVs, motorcycles, and even some motor homes.

Car sales taxes vary by state, so buyers will need to calculate the amount of the benefit to determine how much the deduction will influence their new car purchase. In states that have neither state or local car taxes, the IRS does allow deductions for other fees and taxes that may be imposed. Again, these will need to be investigated on a state-by-state basis.

Find out if the Car Allowance Rebate System will help your new car purchase.

The so called "cash for clunkers" CARS program aids consumers in buying a more fuel efficient car or truck from a participating dealer. The discounts or vouchers range in value from $3,500 to $4,500. In order to claim the discount, your existing car must get 18 mpg or less and must have been manufactured in 1984 or later. If the new car will get 22 mpg or more, the voucher will equal $3,500. If the new car gets 10 mpg higher than the vehicle to be traded, the voucher jumps to $4,500. For small trucks, the new vehicle must get two mpg better than the 18 mpg limit to get $3,500; five mpg better for $4,500. For large trucks the limits are 15 mpg and one mpg better for $3,500; two mpg better for $4,500.

Consumers should understand, however, that these vouchers replace the trade-in value of the old vehicle, which, under the terms of the program, will be destroyed. Since CARS received only $1 billion in funding, money for the vouchers is expected to run out around November 1, after aiding approximately 250,000 individuals. (Also note that you can use both of these measures together. You can trade in a car in the "cash for clunkers" program and also claim a sales and excise tax deduction.)

By investigating these two programs and by following more conventional wisdom . . .

looking for sales and rebates,
shopping for more than one model at a time,
refraining from adding expensive extras,
and getting an insurance quote on the new vehicle before you sign on the dotted line...

this year could offer the best deals consumers have enjoyed on new cars since the 1980s.

*** If you are in another country, be sure to check with your government and tax department to see if they have similar programs to help you determine how to buy a car for the best possible price.

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