Donate a Car

Should You Donate a Car Or Trade it In?

Donate a Car

Tax Advantages For Donating Your Car

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If you have a car that you want to get rid of, it is often easier to donate it than sell it. Sometimes donation may not

sound appealing, you have to consider the tax benefits of donating a car. However, in order to get the best and

full benefits, you must donate it in the proper way.

The reason you are able to do this is simple. When a charity is actually going to use your vehicle, it falls under a different category when you file your taxes. When a charity auctions off your car, it is seen as a cash donation more so than anything else. When the charity actually uses your car, you are able to write off the actual car.

When you deduct the market value of the car, it can become cash in your pocket at tax time. You will get to put that

deduction down, and then you will get a refund. The refund will be based on the fair market value of the car, along with your tax bracket.

This is a great way to make extra money at tax time, as well as do something good for others. There are many

organizations around that offer this and you want to go with one that uses the cars for their business so you can get the maximum benefits.

This is an easy alternative to selling, and you will get some money at tax time. Do your research and use the charity that will benefit you the most. Then, you simply need to call them up and tell them you would like to donate your car. In most cases, they will pick it up. You will get some paperwork to help at tax time, and then you will get your deduction.

Donating a Car for a Tax Deduction Scenario

For example, there is a vehicle with a market value of $1000 that a taxpayer wants to donate. They can choose

between 4 options:

Option 1. Donate the car to a standard charity that has 501(c)(3) tax-exempt status with the IRS. Remember that the taxpayer is not obliged to know the tax deductible amount ahead of time. The letter you receive from the charity will state the amount it was sold for — which is usually far less than the market value. For instance if it’s sold at auction for $200 and the consumer is in a 33-percent tax bracket, they can deduct $66 from their taxes. The $1000 car is now worth about $66 to the consumer.

Option 2. The vehicle can be traded for a new one which more often than not is not a good option. Unless the

vehicle is a late-model luxury or Japanese car that might fetch a reasonable price, dealers are never thrilled to get

an old junky trade-in. Unfortunately, dealers will use this against the consumer and will change the terms of the

purchase or lease so the consumer will need to be fully aware of what is going on. If the $1000 vehicle is traded the consumer may get $700 for it.

Option 3. Donate the car to a car-oriented organization such as Charity Cars, which will use the car as part of its

stated cause in its tax returns. Donating a car in this manner affords the consumer to use Edmunds.com’s True

Market Value SM as the appraisal technique. Assuming the 33-percent tax bracket again, the formula $1,000 x 33% = $330 means that the consumer will pocket $330.

Option 4. Sell the car privately as opposed to donating it for around its full market value of $1,000. Typically this is

the most difficult of options but is usually the most beneficial. Web-sites such as Autotrader and eBay Motors makes this option extremely easy.

First, tax rules have changed regarding vehicle donations. At one time you could write off the fair market value of the car. People were taking advantage of this process, which led to reform. The reform was necessary because people were deducting a great deal more than their vehicle was worth.

The government was losing a lot of money due to this fraudulent behavior. Now, if you claim the value of the car to be more than $500, you have to claim the amount the charity you donated it to sold it for. That means you could end up with a tiny tax donation. Often, charities are not able to make a great deal of money off the cars that are donated

to them. You could have a car with a fair market value of $2000, and the charity could sell it for $500. That would be devastating, as it would not help you very much on your taxes. Luckily, there is a way around this. Instead of donating it to a charity that will auction it off, donate a car to a charity that will use it. For example, there is a charity called Charity Cars. Charity Cars uses the donated vehicles

for their business, which means you can deduct the market value of the car.

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