Summary: Winning a lemon law claim gets you one of two remedies: a buyback (refund) or a comparable replacement vehicle. The buyback is the purchase price minus a mileage offset for use before the first repair complaint, plus sales tax, registration, finance charges, and incidental costs in most states. The mileage offset commonly uses miles at first complaint divided by 120,000 times the price (California method). Replacement means a comparable new vehicle, not an upgrade. Buyback is usually better when you have lost confidence in the model; replacement can win when you still want the car and prices have risen.
The standard buyback is everything you paid, minus a usage offset. 'Everything you paid' generally includes the purchase price, sales tax, registration and title fees, finance charges paid, and incidental costs like towing and rental cars (with receipts). The usage offset accounts for the miles you drove before the defect surfaced.
California's statutory method is the most cited: offset = purchase price x (miles at first repair / 120,000). Complain at 4,000 miles on a $35,000 car and the offset is $1,167. Complain at 30,000 miles and it is $8,750. Early written complaints are literally worth money, which is another reason to complain in writing at the first symptom.
Beyond the price, most states add back collateral costs: sales tax, license and registration fees, finance charges already paid, and incidental damages such as towing, rental cars, and sometimes missed-work costs. Keep receipts for all of it from day one.
What gets subtracted: the mileage offset, damage beyond normal wear, and aftermarket additions you installed (those are generally not refunded). If you still owe on a loan, the lender is paid from the refund and you receive the remainder; if you are underwater, the math gets negotiated.
Instead of money, you can take a comparable replacement vehicle: same make, model, and trim as close as the manufacturer can provide, new, with a fresh warranty. 'Comparable' is the operative word; you do not get to upgrade to a higher trim at the manufacturer's expense, though you can usually pay the difference if you want.
Replacement makes sense when you still want the car, when equivalent new models now cost more than your refund would cover, or when tax and registration on a new purchase would eat the buyback. It makes less sense when you have lost confidence in the model or the dealer network.
Run both numbers. Buyback value = refund minus offset plus add-backs. Replacement value = sticker of the comparable new car minus what you would pay out of pocket. Then add the soft factors: do you trust this model now? Has the manufacturer fixed the defect in current production? How much is your time worth in a second round of the same process?
Most consumers take the buyback. It is clean, final, and lets you shop any brand. Replacement keeps you in the manufacturer's ecosystem, which is exactly what some buyers want to leave.
There is a third outcome manufacturers offer quietly: the cash-and-keep settlement, where you keep the car and receive compensation for the diminished value and hassle. This can be attractive for intermittent defects that were eventually fixed, or when the offset would be large.
Price it honestly: get the car's current value versus its value without the defect history, add your incidental costs and aggravation, and compare against the buyback. Do not accept cash-and-keep for a safety defect that is still unresolved; no discount is worth that risk.
Lemon law refunds are generally treated as a return of purchase price, not taxable income, to the extent they do not exceed what you paid. Amounts above your basis, such as certain penalty or treble-damage awards in some states, can be taxable. Attorney fees paid by the manufacturer under fee-shifting are generally not income to you.
This is general information, not tax advice; confirm the treatment of any amount above basis with a tax professional.
Purchase price minus a mileage offset (commonly miles at first complaint divided by 120,000 times the price), plus sales tax, registration, finance charges paid, and documented incidental costs like towing and rentals.
Yes. The manufacturer must provide a comparable new vehicle: same make, model, and trim as close as available, with a new warranty. You cannot force an upgrade without paying the difference.
The manufacturer pays you compensation for diminished value and hassle while you keep the car. It suits fixed intermittent defects, but not unresolved safety defects.
Generally no, to the extent it just returns what you paid. Amounts above your basis, like penalty awards in some states, can be taxable. Confirm with a tax professional.
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Data current as of October 2026. Sources: CA Civil Code 1793.2(d); TX Occupations Code ch. 2301; state AG publications. Legal information only, not legal advice; tax notes are general information.