Are you thinking of donating a car to charity? While donating a car is an easy way to quickly get an old vehicle off your hands, you have to be sure you are doing it for the right reasons. Contrary to popular belief, donating a car will not give you a huge tax break, so if you are in it for the money, it might pay to sell your car a more traditional way.
Pros of Donating a Car
Most charities will take anything. While not every dealer or private buyer will take an old clunker, charities are often happy to take a car in almost any condition. They will often even tow it away for you if it is too old to run on its own. It is a straightforward process. If you want to donate a car, simply call a car donation charity and someone will come to pick up the car at your house.
You will likely be eligible for tax benefits for making a donation to charity. And you can enjoy the satisfaction of setting aside money for a charity you love and respect. Even your old clunker might fetch a few hundred dollars for the charity at the salvage yard.
In order to be eligible for a tax deduction, you will just need documentation from the charity to prove you transferred the title into its name and that it has accepted the donation.
Cons of Donating a Car
There are some downsides to donating, though. It can be a hassle to actually reap your tax benefits. The paperwork is complicated and sometimes not worth the trouble. You will need to carefully select the right type of charity, find the fair market value of your car, figure out how the charity will make use of your vehicle, acquire a Form 1098-C, and you (or your accountant) will need to read IRS Publication 78—not exactly light reading material.
You also may not get as big of a deduction as you think. Sometimes, charities sell cars at auction for as little as $50. Unless the car is being used by the charity (instead of sold for a profit by them), you will not be able to deduct its full value for tax purposes. You will likely, at most, be able to deduct a few hundred dollars. If your car is sold for under $500, you can either deduct $500 or the fair market value, whichever is less.
The donation won't be worth anything on your taxes if you don't itemize your deductions. Since the 2017 Tax Cuts and Jobs Act, standard deductions are large enough that many taxpayers won't benefit from itemizing. In 2021, the standard deduction is $12,550 for single taxpayers and $25,100 if you're married filing jointly. Unless you have a lot of other deductions, you may not realize the tax benefit of donating your vehicle.
You might be audited. If you donate a non-cash item such as a car, the IRS gets suspicious, meaning your chances of being audited go up.
If you do decide to donate a vehicle and you're hoping for the tax deduction, make sure you give it to a 501(c)(3) charity. Also, be sure to donate only to a charity that is experienced in car donations so you'll have an easier time completing the necessary paperwork. Of course, if you know someone in need and are not worried about the tax deduction, you can also just give the car to someone else.
Pros of Selling a Car
Before you decide to donate, you should compare it to the benefits and downsides of selling instead. Obviously, the biggest advantage of selling your car is that someone will give you money in exchange for it. You won’t have to wait until tax time to reap the benefits.
You will have more to give your favorite charity. Because selling a car will give you money instead of a potential tax break, you can give money directly to charities you love without asking them to go through the hassle of selling a car for you. If you want to make the maximum impact on charity, ironically, it may be best to sell your car yourself.
Cons of Selling a Car
It can take a little while to sell a vehicle. For many private sellers, it can take months to find the right buyer. If you simply want to be rid of your vehicle and are not trading it in for a new one, this can be a hassle.
You also may not want to deal with the hassle of haggling with dealers or private parties over the price of your vehicle or finding someone who is willing to pay your asking price. A charity can get your car off your hands right away with little discussion.
Is Donating Right for You?
Donating a car can be a great way to get rid of an old vehicle, but it's not the best move for everyone. Whether it's right or you will probably come down to a combination of factors. If you are really motivated to help others by donating to charity and you want to get the car off your hands, then donating may be a good option. If you can qualify for a tax deduction, then that's a nice bonus.