Four Questions You Should Ask Before Donating Your Car
Beyond the feel-good factor, here are some recommendations before donating your vehicle to charity.
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Donating a vehicle to charity is an easy way to get rid of an unwanted car, help a cause, and get a nice deduction at tax time. However, the process and benefits of donating your old beater aren’t as transparent or straightforward as sometimes advertised.
When I started out as an auto auctioneer in the 1990s, an auction I worked at received dozens of vehicles donated to local charities every week. These donations weren't always out of generosity or kindness. An owner who contributed a car, SUV, or truck could claim a tax deduction based on "fair market value,” regardless of what their vehicle brought in when sold at an auction. The difference was often vast and enormously unfair to the charities. In one case, a truck that gave the donor a $2,400 tax deduction earned the charity a paltry $31.50.
Congress changed the rules in 2004, limiting the tax deduction you could take for a donated vehicle worth more than $500. These days “fair market value” is exclusively based on the price the vehicle sells for at auction, with one exception. If it sells for less than $500, the deduction is automatically rounded up to that $500 figure.
According to U.S. Internal Revenue Service data, if you're in the 22% federal income tax bracket, a car that only sells for $300 will net you $110 today (22% of $500), while the charity will likely get over $150 if they use a large auction company that partners with a non-profit which handles the transport and paperwork issues for you.
If you are still interested in donating your vehicle to charity based on the above, here are four questions you should ask beforehand you make a decision.
1. Are You Willing to Sell It Yourself?
Auctions that resell donated vehicles are mostly “wholesale” or “dealer only.” Donated cars are then auctioned to someone else who will either fix and resell them or sell the thousands of parts that make up your vehicle.
In most cases, you’ll make more money selling your car than you will save by taking a tax deduction after donating the car. If you’re motivated to turn your vehicle into a good deed, you could then donate those funds directly to charity. By doing this, you’ll also earn a bigger tax deduction and your chosen charity will pocket more money.
Before you commit to this plan, know that selling a very cheap used car can sometimes be more work or hassle than anticipated. If you advertise and sell it, you may have to deal with lowballers who want to offer you a ridiculously low price for your vehicle. Or you may end up selling it to some jerk who decides not to re-title the car in their name. If the vehicle you are selling is abandoned or used for a crime, you may be contacted by a tow company or even law enforcement if the title is still in your name. I’ve personally had both of those experiences with cars sold for less than $2,000. If you don't want even a remote chance of these headaches in your life, donating your vehicle is a much safer way of getting rid of the vehicle.
2. Do You Have the Title?
We all die, and the paperwork involved can be a real hassle for those left to deal with the estate. At the charity auctions I attend, there are almost always excellent vehicles sold either for “parts only” or “bill of sale only” because the new owners can’t get a title. If you're in a situation where you cannot title a vehicle in your name, the decision may be made for you: The only two options you likely have are either selling the vehicle for parts or donating it.
3. Do You Itemize Your Taxes?
Nearly 90% of taxpayers do not itemize their deductions, according to the IRS. Unless you own a business and that business is donating the vehicle, you're likely not going to get any tax savings at all.
High-income earners who don't have children or other dependents may benefit, but the hurdle is still pretty high. The standard deduction for 2021 is $12,550 for single taxpayers, $18,800 for heads of households, and $25,100 for those filing jointly. If your itemized deductions are less than those numbers, you won't get any financial benefit from donating a car.
However, there is a far bigger question that deserves your time.
4. Are You Motivated to Give to Charity?
Beyond the numbers, there is a greater sense of purpose when you donate a vehicle to a cause you feel strongly about. When my son was diagnosed with Crohn's disease, I bought a 1994 Ford Explorer for $100, fixed it up, and sold it for $2,000. Replicating that process several more times (with a 1999 Ford Ranger, 2000 Ford F-150, 1999 Mercury Cougar, 2006 and 2007 Chrysler PT Cruisers, and 1999 Dodge Intrepid) earned enough to make a $4,500 donation to the Crohn's and Colitis Foundation along with $500 towards a local food bank. I didn't take a tax deduction. But I did do what mattered to me. When you have a personal connection to a charity, donating a vehicle can pay dividends beyond just a tax break.
If you’re trying to maximize the money in your pocket, donating a car probably isn’t your best option. But if you're looking for a low-hassle way to get rid of a car you no longer need, or want to help a charity that’s close to your heart, donating the vehicle may be right for you.
