Incentives for cars, houses take effect

Lexington-Herald Leader: Wednesday, Jul. 29, 2009

By Emily Ulber

On Sunday, James Wagner drove past Green's Toyota of Lexington and saw five Prius hybrids sitting on the lot, according to his wife, Etel.

Tuesday, the Wagners went back and traded in their 1997 Dodge Caravan, which got about 13 miles per gallon, for a new Prius, which they expect to get up to 50 mpg.

The Lexington couple was taking advantage of the federal government's Cash for Clunkers program, which saved about $4,500 on their new car.

The $1 billion federal program aimed at getting consumers to buy more fuel-efficient vehicles began Monday and is expected to provide for about 250,000 new vehicles.

"We knew they were going to go quick," said Etel Wagner, who didn't want to be shut out of the program. The Wagners and their three kids will use the Prius as a second car, along with their Ford Explorer.

Nationally, new vehicle sales were down 35 percent for the first half of the year, according to the Associated Press, and the downturn has been devastating for automakers and dealers alike.

But Cash for Clunkers has created a sort of "feeding frenzy" at Freedom Dodge Chrysler Jeep, said Paul Cleaver, the dealership's president.

People started coming in on Saturday asking about the program, and the dealership has sold more than 30 vehicles since then, Cleaver said.

Chrysler also offers a rebate to qualified customers that matches the amount given by the Cash for Clunkers program, Cleaver said, meaning customers can save up to $9,000 if their trade-in qualifies for both programs.

The state is also offering incentives to lure wary buyers to car showrooms and new houses.

State lawmakers approved a compromise economic incentive bill during last month's special session that included the two new tax credits.

The state tax credit for cars won't start until September. It allows people who trade in a used car for a new one to pay sales taxes only on the difference between the value of the two vehicles.

For example, if a customer were to trade in a used car valued at $20,000 for a new car valued at $30,000, they would pay sales tax only on the $10,000 difference instead of on the full value of the new car.

With a sales tax of 6 percent, in that particular instance a customer would save $1,200, Cleaver said.

Ohio, Tennessee and Indiana already have a similar credit in place, which has put Kentucky consumers at a disadvantage in the past, he said.

The auto industry has been pushing the change "for about 35 years now," said Jack Kain, who represents Kentucky on the board of directors of the National Automobile Dealer Association.

The credit is slated to last one year and has a cap of $25 million, but Kain thinks that if sales increase, it could be extended.

Kain said he doesn't expect an overwhelming consumer response to the credit, but hopes it will attract consumers who are on the fence about whether they can afford a new car.

Ken Blanton, president of Boyd County Ford in Ashland, said that while the credit will help the auto industry and the state, the consumer will be the real winner.

"I think we'll see business pick up in Kentucky," Blanton said. "It's definitely a great deal."

Tax breaks for houses

The Kentucky legislation also included an incentive for newly constructed homes—a program that began July 26.

In Fayette County, year to date home sales are down 20 percent, although that number rebounded somewhat in June, growing by 8 percent, according to the Lexington-Bluegrass Association of Realtors.

Purchasers of newly built homes during the program's life span, which will last either until July 25, 2010, or until the $25 million program cap is reached, will receive up to $5,000 of non-refundable tax credit.

Buyers get the credit when they file their state tax returns.

As of Tuesday afternoon, $45,000 had been allocated as tax credits to new home buyers.

Home buyers are required to live in the house for at least two years or pay back the tax credit.

First-time home buyers are excluded from the state credit, but national stimulus money currently provides an $8,000 tax credit to those buyers.

Gale Fulton, president of the Lexington-Bluegrass Association of Realtors, said realtors are "still figuring out all the details" on the credit system.

Out of the 861 homes purchased in June in central Kentucky that were tracked by the association, 89 were new construction, Fulton said.

The new tax credit combined with favorable interest rates should be a push in the right direction for people looking to buy new homes, said Judy Craft of Milestone Realty Consultants.

"It's a little premature" to predict exactly how many people will be affected by the program, but "the way we see it, any incentive is helpful," she said.

Qualified buyers must submit applications for the new home tax credit, provided by the Kentucky Department of Revenue, within seven calendar days of the purchase.

The application is available on the department's Web site at http://revenue.ky.gov/

The site explains the credit to the public and keeps track of the dollars remaining.