Are you thinking about donating a car to charity? While donating a car is an easy way to get rid of an old vehicle quickly, you need to be sure you are doing it for the right reasons.
Contrary to popular belief, donating a car does not come with a lot of tax benefits. So if it's money you are after, it may be worth selling your car the traditional way.
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| What is better to donate or sell the car? |
Advantages of donating a car
Most charities will accept anything. While not every dealer or private buyer will take an old clunker, charities are often willing to accept a car in almost any condition.
They will often even tow it for you if it is too old to drive yourself. The process is straightforward. If you want to donate a car, simply call a charity and someone will pick it up from your home.
You can probably claim tax benefits for your donation to charity. And you can enjoy setting aside money for a charity you love and respect. Even your old clunker could yield a few hundred more dollars for charity at the junkyard.
Disadvantages of donating a car
There are some downsides to donating, however. It can be tedious to take advantage of the tax benefits. The paperwork is complicated and sometimes not worth the effort.
You have to carefully select the right type of charity, determine the fair market value of your car, figure out how the charity will use your vehicle, get a Form 1098-C issued, and you (or your tax advisor) have to read IRS Publication 78 - not exactly light reading.
You also may not be able to deduct as much as you think. Sometimes charities sell cars at auction for less than $50. Unless the car is used by the charity (and sold for a profit), you can not deduct the full value for tax purposes.
At most, you will probably be able to deduct a few hundred dollars. If your car sells for less than $500, you can deduct either $500 or the fair market value, whichever is less.
The donation will not be included in your taxes unless you itemize your deductions. Since the Tax Cuts and Jobs Act of 2017, standard deductions are so high that many taxpayers no longer benefit from itemizing.
The standard deduction in 2021 is $25,100 for married couples filing jointly and $12,550 for single taxpayers. If you do not have many other deductions, you will not be able to take advantage of the tax benefit of donating your vehicle.
If you decide to donate a vehicle and hope to get a tax deduction, make sure you donate it to a 501(c)(3) charity.
Also, make sure you only donate to a charity that has experience with car donations, so you can more easily complete the necessary paperwork. Of course, if you know someone in need and are not worried about the tax deduction, you can just give the car to someone else.
Advantages of selling a car
Before you decide to donate, you should weigh the pros and cons of selling. The biggest advantage of selling your car is that someone will give you money for it. You do not have to wait until tax time to enjoy the benefits.
You will have more money to donate to your favorite charity. Since you are getting money from selling a car instead of getting a potential tax break, you can donate the money directly to charities you care about without asking them to go through the trouble of selling a car for you. Ironically, if you want to make the biggest possible impact for charity, it may be best to sell your car yourself.
Disadvantages of selling a car
Selling a car might take some time. With many private sellers, it can take months to find the right buyer. If you just want to get rid of your vehicle and do not want to trade it in for a new one, that can be a problem.
You may also not want to haggle with dealers or individuals over the price of your vehicle, or find someone willing to meet your asking price. A charity can take your car off your hands immediately and without much discussion.
Is a donation right for you?
Donating a car can be a great way to get rid of an old vehicle, but it's not the best way for everyone. Whether it's right for you likely depends on a combination of factors.
If you are motivated to help others by donating to charity, and you want to get rid of the car, then donating it may be a good option. If you can write it off on your taxes, that's a nice bonus.
Where can I donate a car?
Many nonprofit organizations accept vehicle donations in almost any state. Check an organization's website to find out if they accept vehicle donations and what the requirements are, or contact them. If you want to make the donation tax-deductible, be sure to donate the vehicle to a 501(c)(3) organization.
Can I donate a car without a vehicle title?
Although it is easier to donate a car if you have a car title, you can usually complete the donation without one. You will usually need to fill out some additional paperwork and provide other proof of registration and ownership of the vehicle.
Can I donate a car with a lien?
No. Because a lien shows that you do not own the vehicle free of charge, you will usually need to provide a lien-free title or proof of lien release from your lender before you can donate the vehicle.