Now you can get rid of your old clunker (name given by the government for old gas guzzling cars!) and also save $4500 when you buy a new and fuel efficient car. President Obama signed into law a program the National Highway Traffic Safety Administration (NHTSA) is calling the Car Allowance Rebate System (CARS). This is a federal program that helps you purchase a new, more fuel efficient vehicle when you trade in a less fuel efficient vehicle.

The rules to take benefit of this new regulation are quite easy and can be easily met. Here is a brief decryption of what you will need in order to qualify:

1. The car must be less than 25 years old on the trade-in date
2. Only purchase or lease of new vehicles will qualify
3. Generally, trade-in vehicles must get combined city/highway fuel economy of 18 miles per gallon or less (some very large pick-up trucks and cargo vans have different requirements)
4. Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in
5. You don’t need a voucher, dealers will apply a credit at purchase
6. Program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first.
7. The program requires the scrapping of your eligible trade-in vehicle, and that the dealer disclose to you an estimate of the scrap value of your trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate.
8. The CARS Act requires that dealers be licensed by their respective state for the sale of new automobiles in order for them to participate in the program.

The amount of the credit is $3,500 or $4,500, and generally depends on the type of vehicle you purchase and the difference in fuel economy between the purchased vehicle and the trade-in vehicle. Different requirements apply for work trucks.

Other considerations:

1. The law requires trade-in vehicle to be destroyed. Therefore, the value you negotiate with the dealer for your trade-in vehicle is not likely to exceed its scrap value.
2. You may trade in or buy a domestic or a foreign vehicle.
3. The program does not apply retroactively. This means that if you traded your old vehicle last month, you cannot take advantage of this rule.
4. The CARS Act expressly provides that the credit is not income for the consumer. However, the credit will be considered as income for the dealer.
5. The question of whether a consumer must pay State or local sales tax on the amount of the CARS program credit would depend on the sales tax law of each State or locality. Consumer should review the law of their respective States or consult a tax advisor to answer this question.
6. The credit given for trading in an eligible vehicle may be used to offset the cost of leasing a new vehicle. However, the CARS Act requires that any lease under the program be for a period of at least five years.
7. The value of the credit for the purchase or lease of a new passenger car depends upon the difference between the combined fuel economy of the vehicle that is traded in and that of the new vehicle that is purchased or leased. If the new vehicle has a combined fuel economy that is at least 4, but less than 10, miles per gallon higher than the traded-in vehicle, the credit is $3,500. If the new vehicle has a combined fuel economy value that is at least 10 miles per gallon higher than the traded-in vehicle, the credit is $4,500.
8. You can combine this with other State and Federal incentives, such as the hybrid vehicle credit. For information on this credit, go to http://www.fueleconomy.gov/Feg/tax_hybrid.shtml
9. The CARS Act specifies that not more than one credit may be issued to a single person, not more than one credit may be issued for joint registered owners of a single eligible trade-in vehicle, and that only one credit under this program may be applied toward the purchase or lease of any single new vehicle.
10. While dealers can charge their normal types of fees, the CARS Act specifically prohibits dealers from charging a fee for purchasing or leasing a vehicle under the program.

Check http://www.cars.gov/ for more details on about this rule.

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