Most people have owned a clunker of a car at one point in their life or another. And when the time comes to upgrade to something that actually runs for longer than a mile without breaking down, the question inevitably comes up – what to do with that old car? You can’t sell it, because it has too many problems. The trade-in value is practically negligible. And you can’t give it to any of your friends, not if you want them to stay your friends. Parting it out sounds like too much trouble, and simply having it towed to a junkyard seems like a waste, even with the tiny amount they pay you for salvage value of the vehicle. So – what to do with it?
One available option is to donate the car, and in the process obtain a car donation tax deduction. In this case, you can donate your car to a charity or non-profit, and then write off the amount that the car generates in sales for the charity as a tax write-off, called a car donation tax deduction.
The way that a car donation tax deduction works in the United States is, when you have a car that you think is a good candidate, and you find a deserving charity, you donate your car to that charity. Most likely, they will resell the car, and keep the proceeds. This gives the charity much-needed revenue for their charitable mission, and lets you deduct the sale amount from your taxes.
By working with a charity, you avoid the hassle of listing the car for sale, and having to deal with buyers and paperwork, but you get to keep the car donation tax deduction. The charity handles all the work, and the only paperwork you have to deal with is with the charity, and the IRS.
And if the charity keeps the vehicle for their own use, they’ll provide you with paperwork to that effect, and the deduction that you can claim will be equal to the current value of the car. In that case, it’s a good idea to understand what the charity will do with your car once they have it. If they end up selling the car for less than its value, all you can claim is the resell price, not the value of the car.
Also, make sure that the charity you work with will give you the proper documentation in regards to your car donation tax deduction. In the past, all that was required to substantiate your car donation tax deduction was to keep the paperwork on hand in case the IRS wanted to see. But now, when you turn in your tax paperwork, your car donation tax deduction must be backed up by an IRS form 1098-C, that is sent to the IRS along with your tax return.
Donating your car to a deserving charity lets you help out a good cause and do something good with your old car. And, if you approach it intelligently, it can also result in a good financial move, allowing you to save on your taxes by taking a car donation tax deduction. And in this case, doing the right thing is also the profitable thing – and how often do you get a chance to do that?