Anyone with an old car has probably wondered about the advertisements they see about donating a car in exchange for a tax deduction. While the ads sound tempting, maybe just selling the vehicle would be the better option for you. Often selling the car is the better choice, but if you are short on time and in a high tax bracket, donating can be a better option.
best for you]. Let's begin with time considerations. The car donation option wins here because you just make a phone call, wait two days, and your car is towed away for free. You'll get all your tax deduction papers about a month later in the mail.
So in terms of time, car donation is the better option. The question is, how much spare time do you have? For people who have plenty of free time, selling the vehicle might still be better. For those of you who have claims on what feels like every second of your days may very much want to skip adding a new project to your to do list. Besides, knowing that you are doing a good thing is enough for most people to ignore a couple hundred dollars loss. Especially if you can find a charity that you really care about.
Changing gears into the financial side of this, let's talk about donating a car first. Donating does not produce the cold hard cash that selling does, but it will save you money on tax day. But how much of a deduction? The reality is that most car donations result in a tax deduction of about $500. Though $500 seems like a insultingly low value for your car, remember that it is probably going to an auction house to be sold for an alarmingly low price. Auctioneers also get a cut of the sale, and that lowers your donation further. The average deduction is only $500 because the charity only gets what's left over from the auction, and you can deduct no more than what the charity gets for your donation.
Fortunately, not all donated cars end up at auction (though most do). You are going to have to do some detective work to find a charity that will either use your car themselves, give your car to someone who needs it, or who will make major improvements to the car before they sell it. Vehicles given to these kinds of car donation program meet the IRS requirements for being able to deduct the fair market value of the car, which is generally understood as the Kelly Blue Book value. That can make a thousand dollar difference in how much you can deduct.
While you can now deduct the fair market value of the car, let's compare that to what a sale price might be. Because most used cars sell for roughly the Blue Book price, the two figures are certainly in the same ballpark. All things being equal, though, money in real cash is more compelling than just another line item on a tax return.
Let's get back to the aspects of selling the car. To get a good price you'll need to clean the car up, and $50 for a professional clean is a wise investment. You should also have a mechanic check it, which runs another $100. Next up is to buy about $50 worth of advertising to attract buyers. So while $1500 of cash looked better than a tax deduction of the same value, actually you are going to have only $1300 after you cover all the costs to sell the car.
Now let's total up the value of the time involved to sell your car. It is true that some cars sell the first day you place an ad for them, but some cars also take two months to sell. Say your car sells in two weeks -- that leaves you at about eleven hours to sell it, between three hours for sales prep and eight hours working with prospective buyers and all those fun phone calls.
So you're now at $1300 for a sale price and eleven hours of lost personal time. When you estimate the value of your time as $20 an hour you are only getting $1080 for selling your car after $220 taken away for the cost of your time and a $200 reduction for sales preparation expenses. Uncle Sam will also want a portion of your car's sale price. With taxes of about $80, you've now hit just $1000 for selling your vehicle.
After all that, you are at getting either $1000 of cash for selling your car or $1500 of tax deduction. That does make donating the car seem more attractive, especially if the charity you are giving the car to is really first-rate. If you don't know of such a charity, there are several charity-rating websites that can help you out.
best for you]. Let's begin with time considerations. The car donation option wins here because you just make a phone call, wait two days, and your car is towed away for free. You'll get all your tax deduction papers about a month later in the mail.
So in terms of time, car donation is the better option. The question is, how much spare time do you have? For people who have plenty of free time, selling the vehicle might still be better. For those of you who have claims on what feels like every second of your days may very much want to skip adding a new project to your to do list. Besides, knowing that you are doing a good thing is enough for most people to ignore a couple hundred dollars loss. Especially if you can find a charity that you really care about.
Changing gears into the financial side of this, let's talk about donating a car first. Donating does not produce the cold hard cash that selling does, but it will save you money on tax day. But how much of a deduction? The reality is that most car donations result in a tax deduction of about $500. Though $500 seems like a insultingly low value for your car, remember that it is probably going to an auction house to be sold for an alarmingly low price. Auctioneers also get a cut of the sale, and that lowers your donation further. The average deduction is only $500 because the charity only gets what's left over from the auction, and you can deduct no more than what the charity gets for your donation.
Fortunately, not all donated cars end up at auction (though most do). You are going to have to do some detective work to find a charity that will either use your car themselves, give your car to someone who needs it, or who will make major improvements to the car before they sell it. Vehicles given to these kinds of car donation program meet the IRS requirements for being able to deduct the fair market value of the car, which is generally understood as the Kelly Blue Book value. That can make a thousand dollar difference in how much you can deduct.
While you can now deduct the fair market value of the car, let's compare that to what a sale price might be. Because most used cars sell for roughly the Blue Book price, the two figures are certainly in the same ballpark. All things being equal, though, money in real cash is more compelling than just another line item on a tax return.
Let's get back to the aspects of selling the car. To get a good price you'll need to clean the car up, and $50 for a professional clean is a wise investment. You should also have a mechanic check it, which runs another $100. Next up is to buy about $50 worth of advertising to attract buyers. So while $1500 of cash looked better than a tax deduction of the same value, actually you are going to have only $1300 after you cover all the costs to sell the car.
Now let's total up the value of the time involved to sell your car. It is true that some cars sell the first day you place an ad for them, but some cars also take two months to sell. Say your car sells in two weeks -- that leaves you at about eleven hours to sell it, between three hours for sales prep and eight hours working with prospective buyers and all those fun phone calls.
So you're now at $1300 for a sale price and eleven hours of lost personal time. When you estimate the value of your time as $20 an hour you are only getting $1080 for selling your car after $220 taken away for the cost of your time and a $200 reduction for sales preparation expenses. Uncle Sam will also want a portion of your car's sale price. With taxes of about $80, you've now hit just $1000 for selling your vehicle.
After all that, you are at getting either $1000 of cash for selling your car or $1500 of tax deduction. That does make donating the car seem more attractive, especially if the charity you are giving the car to is really first-rate. If you don't know of such a charity, there are several charity-rating websites that can help you out.
About the Author:
Pamella Neely writes about vehicle donations and how to get the best possible car donation tax deduction.