Restrictions on tax deductions claimed for donating a car to charity have made the process of donating and deducting the value of your unneeded vehicle more complicated. Most car owners are unsure whether or not it is worthwhile to donate their car.
Advantages
There are only specific instances when donating your vehicle poses advantages.
Avoid Selling Issues:
Not every car owner wants to deal with the selling or trading process. A car that doesn’t run will need to be towed at your expense, there are prospective buyers to contend with, and negotiation makes many people uneasy. If you want the car out of your driveway quickly without selling it yourself, donating the vehicle to a charity is often an attractive option.
Value Under $500:
The IRS restriction on assigning an arbitrary value to donated vehicles does not affect cars with a fair value under $500. Most charities that accept cars as donations have no issue with a low-value car, and you will be able to claim the small tax deduction without needing to deal with the new restrictions.
Kept by the Charity:
If the charity you are donating your used car to is planning on keeping the vehicle to use within their charity, instead of selling it for the money they may need, you are allowed to claim a tax deduction for the assessed fair, or ‘Blue Book,’ value of the car.
Disadvantages
The following disadvantages may convince you that trading in or selling your car is a better option for your circumstances.
Maximizing Value:
Charitable organizations rarely receive the full fair value for the donated cars they sell. Due to this, you may wind up with an allowable tax deduction that is only a fraction of what the car was worth.
Uncertain Value:
The updated donation deduction standards the IRS put into effect in 2005 mean you have to wait for the charity to sell the car to know the deduction you are able to claim. Unless your car is worth less than $500, you will have no control over the final value of your donation. Once the car is sold, your tax bracket will indicate the percentage of the sale price you are allowed to claim as a deduction.
The decision whether or not to donate your car to a charity should depend on both the value of the car and how much you believe you can profit from opting to sell or trade-in the vehicle.
*Image courtesy of freedigitalphotos.net
