Now that its tax time, I’ve been hearing a lot of commercials trying to get people to donate their used vehicles to charity.
I realize that you can get a tax deduction - but that, to me, doesn’t seem to make monetary sense. If you can drive the car (many of the ads indicate the vehicle must be drivable), you can pretty easily get at least $1000 for the car. If you donate the car, you write off $1000, which translates to roughly a few hundred less in tax liability (depending on tax bracket, of course).
Ok - so lets say you are just good at heart and decide to donate rather that recoupe the full value of your car (feel free to point out any aspect of the financial situation that I may be missing!) - many of these ads are for donating vehicles to help kids.
How does donating a vehicle help kids? Does the organization fix up and sell the car, giving the proceeds to childrens causes? Are the vehicles used in something like a tech school, to give students practice vehicles to work on?
It used to make more monetary sense until the IRS clamped down on inflated claims, which regularly occurred with the charity’s collusion. Years ago I donated a vehicle once, and got a slip from the charity for my tax return which gave the worth of the vehicle as far greater than anyone would have paid for it. Hey, THEY made the estimate, unbidden, and gave me documentation, so I just wrote that much off on my taxes. The IRS changed the rules for valuation of property donations because that sort of thing got so ridiculous. That, coupled with not having to go through the hassle of selling the vehicle made it attractive.
Depends on the charity- I’ve heard of one which has students in a training program fix the car, and then sells the cars inexpensively to people in need.
Financially, you are correct – most of the time you are better off selling the car than donating it.
But there’s a lot less hassle donating it. You just call them up, they come by and pick it up and send you the paperwork you need for the donation. You don’t have to wait while various people check out your car until someone finally decides to buy it.
The IRS won’t let you deduct blue book anymore if the charity puts it on on the lot for auction. You can only deduct what the charity actually gets at action. The charity sends you a form in the mail after they auction your car with this information; the form must be submitted with your tax return. (Form 1098-C.)
Ed
I never quite understood this myself. I hear car-donation radio ads for the church Our Lady of the Wayside pretty often in NE Ohio; they’ll even accept donated boats.
I donated a car a few years ago. Then I took blue book and also used a few newspaper adds to estamate value. Even with the new rules I would probably do it again. The car was 17 years old, It need tires badly, had 279,000 miles. If I were to sell it I would need to pay for a newspaper add. show the car how many times, drop my price. It was not worth all the work I would take a smaller tax credit and figure my time was worth more.
First, you are never financially better off donating an item and taking a deduction if you can instead sell it for the amount of the deduction. (This is true of any kind of deductible expense.)
Second, it’s a deduction, not a credit (as one post mentioned).
It used to be that people would donate their beater car and then claim a deduction of full retail value or even higher, which was usually much more than the actual market value of that particular vehicle. This inflated the deduction and in some cases the car would be more valuable as a tax deduction than to sell it.
The rules have changed. This was a change to the tax code [see 170(f)(12)], not a decision by the IRS.
If you donate a car and the charity actually uses the car, or gives it to someone who can use it, you can deduct the true market value of the car. This still leave a loophole for inflated deductions, but most charities do not do this.
If you donate a car and the charity auctions the car to raise case, you can deduct only the amount the charity actually receives. This is what most charities actually do. In most cases this will be less than what you could sell it for on the retail market, since the auction buyers are usually wholesalers, dealers, or salvage companies. This means that your tax deduction is much less than even if you sold the car yourself and donated the cash to charity.
I checked on this recently with my 13 year old car. I believe the limit for deduction is now $500, and that’s itemized on Schedule A as a charity donation, which means it’s not $500 off of your taxes, it’s $500 x your tax rate. Most people’s actual tax rates are 10-20%, so you’re looking at getting $50-100 for your car. I instead sold it privately for $1200, and it only took 2 Craigslist postings and the first couple to see it bought it 15 minutes later because it was a great deal. So overall I recommend selling it privately, just price it right, and you can donate some of that money to charity if you wish.
Incorrect. The 500 figue is used for donations without further information give to the IRS. There is no actual top end limit (there is a % of AGI limit, but that’s rarely reached), it’s just that you have to attach another form listing the Org you gave the donation to,etc.
Just to add another bit of info, I tried a few years ago to donate an older car to my local public radio station, but they didn’t want it because it was more than 10 years old. I ended up junking it.
FWIW, many years ago I donated an old POS to a charity (National Kidney Foundation??)which then resold it to someone else.
This 3rd. party then abandoned the car in Washington, DC, running up all sorts of parking fines and impound lot fees while they looked for the owner. DC ran the VIN and traced it back to me and tried to gig me for the unpaid bills. It took some effort to convince the idiots that be in Washington that I no longer owned said car and was not in any way liable for those fees.
As I have never heard of anything similar from anyone else, I’d treat this anecdote as a freak occurance.
I got notice that the car that I had donated had been towed because of unpaid parking tickets. They told me to total to redem the car. Later I got a notice that the car had been sold at action.