The car donation processing business is extremely profitable, and
as a result it has attracted a lot of advertising dollars, and also a
lot of hype that is only tangentially true. Before you get to swayed by
all the glitzy ad copy, here are some of the realities of car donations.
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| Car Donation Myths |
Myth number one: your car will go to a needy person.
Very
few donated cars actually end up being given to needy people. Most of
them -- about 90% -- end up at auction houses, where they are auctioned
off to the highest bidder. The auction price is usually less than the
Kelley Blue Book value of the car, and sometimes it is less than half of
the book value. What's more, the auctioneer will take a cut of the
sales proceeds, sometimes as much as half, and so what the charity
actually gets as a result of your donation may be only a very small
fraction of the actual value of your car.
There are some charities
that actually give donated cars to people, and other charities that may
take cars on a case-by-case basis to help with their own programs, but
they are harder to find, and you will have to be more careful about the
tax processing documents and the title transfer. That's because these
charities aren't as intimately familiar with car donation as the major
car donation processors are. That doesn't mean they don't know what
they're doing, they just don't do it as often or it on the same scale as
the big car donation processing houses do. But if you are willing to
look, you can find charities that will either use your car themselves or
find a needy person to give it to. In those cases you will get a
substantially larger tax deduction than you would if the car was sold at
auction because in the case of an auction, you can only deduct the
amount that the charity actually gets, not the car's value. But if a
charity uses the car or gives it to someone who needs it, then you can
deduct the full "fair market value" of the car.
Myth number two: your car donation will help the charity in a big way.
While
your car donation definitely will help the charity, if you really
wanted to help them, it would be better if you sold the car yourself and
gave them the proceeds of the sale. Again, this is because most donated
cars are sold at auction, and auction prices are much lower than what a
private buyer and seller would agree to.
Myth number three: you will get a huge tax deduction for donating your car.
The
days of massive tax deductions for donated cars are over. This ended
when the IRS laws for donating cars changed back in 2005. The average
income tax deduction from a car donation is about $500. This is because
most cars are sold at auction, but also because most donated cars aren't
terribly valuable to begin with. If your car is worth more than $500,
or it sells at auction for more than $500, you can still get a larger
tax deduction, but you will have to fill out extra paperwork, and you
may want to have had the car appraised before you make the donation, and
appraised by an IRS approved appraiser. You would want to do this in a
situation where you were donating a very expensive car, perhaps if you
were an antique car collector who wanted to thin out their collection.
As
mentioned before, if you can find a charity that will either use your
car themselves, give your car to a needy person, or make major
improvements to your card before they sell it, then you see a much
larger tax deduction. But still don't expect your donation to wipe out
your tax bill. You will be able to deduct roughly the Kelley Blue Book
or "fair market value" of your car, but nothing more.
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