Tax Implications Will Vary for Volkswagen TDI Owners

A federal judge has granted final approval to Volkswagen’s 14.7 billion dollar settlement, ensuing its 450,000 affected TDI customers to receive a five to 10 thousand dollar cash settlement, with buybacks beginning mid-November.

This comes 13 months after the German automaker admitted it secretly and intentionally installed software designed to cheat on emissions tests on some of its 2.0-liter clean diesel cars. In reality, some cars emitted nitrogen oxide at 40 times the legal limit.

Affected owners and lessees have two options beyond the cash settlement. They can either wait for Volkswagen to issue a fix, which could take up to 18 months, or they can opt for the buyback. Those who choose the buyback will receive their vehicle’s appraised value from September 2015—when the scandal first broke.

Hartford resident Randalle Reid owns a 2009 Jetta Sport Wagon TDI and feels torn. For him, Volkswagen is a family tradition.

"(My) father, sisters, my relatives (all had one), my wife had one when I met her," said Reid. "We’ve had lots of them."

And Reid’s car is in good condition, with 108,000 miles.

"We wouldn’t sell it for another five years just because (my wife) likes it," said Reid. "And now we have to get a new car."

He said he will likely opt for the buyback, like many other TDI owners. But as Connecticut’s Department of Revenue Commissioner Kevin Sullivan points out, impacted owners should do their homework.

"We wanted to make sure that consumers were aware that there are different tax implications with how they treat whatever they do with the car they’re entitled to do with," said Sullivan.

Unlike a normal trade-in, those who take the buyback will have to pay Connecticut sales tax on the full price of their new vehicle. He said some owners might not want to cash in on the settlement and instead trade their car in. In that case, buyers would only have to pay tax on the difference between the two cars.

"Do some intelligent comparison and know which is the best option for you," said Sullivan.

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