In the past, donating a car, regardless of its value or condition, was a very popular way to reduce your income taxes by thousands of dollars, even if the charity was not so fortunate. Well, the government caught on to this and put a limit to the tax deduction you could take for a car donation. Instead of allowing the donor to deduct the fair market value of the vehicle, as before, the deduction is now calculated by the amount of proceeds gained by the charity and documented by a receipt from the charity.
Quite often, a donated car will sell at auction or charity sale for an extremely low price - even less than $100! Well, needless to say, donating an old car for a sweet tax deduction now leaves a bad taste in the taxpayer's mouth. On the other hand, there are several good reasons to donate a car to charity. An old junker is not going to bring in much of a profit when sold by the owner, especially when you consider the time it remains an eyesore in your front yard. There is also the hassle of making sure the buyer transfers the title out of your name to eliminate any liability should they get into an accident. So, by donating your junk car to a charity, though the tax break is small, there is no liability, you have helped to support a worthy cause and do not have to deal with getting rid of an unwanted car that isn't going to sell for much anyway.
So why donate your car to charity if there is a chance you can profit more by selling it?
First and foremost, you get to avoid the trouble of selling the car, advertising, meeting with buyers, worrying about it every time someone takes it for a test drive, answering countless questions, haggling over the price, making sure all the I’s are dotted and T’s are crossed when you finalize the sale. You have better things to do with your time and a charity is happy to get whatever they can to further their cause.
The tax deduction; though not as profitable or easy to claim as in the past, as long as rules and guidelines are met it is still possible to come out ahead and owe less income taxes.
The satisfaction of helping a worthy cause. Most people are happy to donate to a charity that they care a great deal about.The charity can sell the car to further their cause or put it to use within their charity.
Donating a car to charity can be easy and profitable. If the vehicle is not derivable, many charities will send a tow truck out to collect it at no cost to the donor. Of course, your tax deduction will be reduced by expenses incurred by the charity, but any deduction is better than none and they are glad for the donation.
If the car is in very bad shape, they can sell it for parts or scrap. Even if you end up with little or no tax deduction, you have still supported a charity you respect and got rid of that junk car which was useless to you.