Face it. That old car of yours is not going anywhere anymore. It had a good life, but it’s over. All that’s left now is to figure out the best way to get the vehicle to its final resting place. We previously asked the question whether it’s time to junk your car or fix it. Now it’s time to ask yourself the question, “Should I junk my car or donate it?”
If you choose to junk your car, Junk Car Medics will take it off your hands and leave you with memories…and some cash. Before you decide, let’s examine both donating and junking. Then make up your mind. Options are always good.
Though some charities only accept cars that run, many take just about anything, because they’ll make money by junking the car themselves or selling it at auction. A lot of people donate vehicles with the intention of getting a tax benefit. Naturally, the IRS has rules and conditions governing the process. Since they get to make the final call, you might as well follow their guidelines.
- If you want a deduction, be sure that the organization is a qualified charity. Most commonly, these are 501(c)(3) entities focusing on educational or assistance programs. Religious organizations count, too, but they generally don’t fall under that specific label. If you’re not sure, check with the IRS to see if your potential recipient is registered with them. You don’t want to go through the donation process and be psyched for a deduction, only to have it swatted down by the government. Bummer.
- To claim deductions, you must itemize them on Schedule A of your 1040. Of course, there are rules and limitations. For instance, your deductions can’t be equal to more than half of your adjusted gross income.
- Set the value of your car. You don’t get to make it up out of thin air or even take your best guess. You need to determine its fair market value…what someone would really pay for it. In the case of a junk car, this is probably going to be less than the Kelley Blue Book listing.
- Be aware that you won’t be able to take the full value of your car as a deduction. The amount will be based on your marginal tax rate, so your deduction will be a fraction of the car’s worth.
- Records, records, records! You must have paperwork to back up your deduction if your car is worth at least $250. Don’t send this to the IRS, but keep it safe in case they come looking…
- More paperwork: if your car is worth more than $500, you’ll need to file Section A of Form 8283. More than $5,000? Fill out Part B of that form, and get your car formally appraised.
In most states, you’ll transfer the title to the charity and update the vehicle’s registration with that info. You’ll usually need to remove the license plates and registration sticker, as well.
Some other points to ponder about charitable donations:
- If it matters to you, check out how much a charity spends on administration costs, as opposed to doing its good works. Fifteen percent or less is a good rule-of-thumb for operating expenses.
- Many charities hire businesses to deal with car donations. This is certainly legal, but a large chunk of the proceeds will then not end up with the charitable organization.
- If you do go through a third party, make sure the title is transferred using the name of the charity, or the IRS might not be happy. And when they’re not happy, you’re not happy.
- Will the charity tow the vehicle for you? Most do. If not, though, you might be paying out-of-pocket expenses…that seems kinda unfair.
If you don’t itemize, you won’t get any tax benefit from donating. You might still get a warm and fuzzy feeling from helping out, and that’s great. But for financial reasons, a lot of folks need more than that. When you junk your car, you’ll typically get cash when hand over your vehicle. Depending upon your circumstances, that extra money right now could be a lot more helpful than a deduction down the road.
If you decide to take the junking route, call around to some salvage yards to see what they’re offering. All junkyards are not created equal. Find out timelines, towing costs (if any), and estimates. Salvagers often pull out any sellable parts before sending the scrap metal to be recycled. Though you won’t be helping a charity in this process, recycling helps the environment by saving on energy costs and reducing pollution.
If you’ve reached the point where you’re asking, “Should I junk my car or donate it,” weigh your options. Look at the pros and cons of each, and decide which is better for you right now. If you’re ready to junk it, call Junk Car Medics. We’ll give you a fair price.