Should I Junk My Car or Donate It?

donate junk car to charity

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.

Places that Take Junk Cars as Donations

But are there really places that would want a junk car as a donation? Of course! As we’ve explained above, junk cars are worth money even if they’ll never run on the road again. Local charities take junk cars so that they can sell them to salvage yards or auction houses and use the money for a good cause.

If you have a cause that is close to your heart, you can get a good feeling – and a tax deduction – by donating your car to a charitable organization affiliated with that cause. To find a charitable organization that will accept your car donation, you must first be sure of two important things:

  1. That the organization is a legitimate 501(c)(3) charitable organization and the IRS recognizes it as one.
  2. That the organization is able to accept your car donation.

Check the IRS Tax-exempt Organization Database to verify whether an organization you are considering is a legitimate 501(c)(3). Another option is to call the IRS toll-free at 877-829-5500. Have the organization’s complete and correct name and address ready before you call.

You might also want to do some extra research on the charity of your choice to make sure that the organization is actually using donations for good works. That way, you can rest easy knowing that the proceeds from your junk car are being put to good use.

Tips on Finding the Perfect Charity to Donate Your Car To

  • 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 kind of unfair.

How to Donate a Junk Car

Chances are that there are plenty of charities near you that take junk car donations. In general, the process usually goes like this:

  • Make sure the charity is reputable and will qualify for a tax deduction. If you’re not sure, check with the IRS to see if your potential recipient is registered with them.
  • Transfer the title to the charity and update the vehicle’s registration. You’ll usually need to remove the license plates and registration sticker, as well.
  • Allow the charity to tow your junk car away. Be wary of charities that ask you to pay them to tow your car--it should be free!
  • Keep an itemized record of your donation, including the fair market value of the car, so that you can use it for tax purposes later.

Why Should I Donate My Junk Car to Charity?

When you choose to donate your car to charity, you’re making a choice to enter a situation that is truly “win-win”, not just for you, but for the charity you select.

Helping Others

Charities have a wide variety of uses to which they could put a donated automobile. Some will use the vehicle for deliveries, transportation, or other needs that benefit their cause if the vehicle operates. But if it is truly junk you can donate your car to charity, and they will in turn sell it to a local auto salvage yard that accepts auto donations.

Tax Write-Offs

When you choose to donate your used automobile to charity, you as the donor get to enjoy significant tax savings by way of tax deductions. According to the IRS, there are two ways to calculate the deduction. If the charity sells your car, then you can deduct the sales price from your taxes. For all other scenarios (such as if the charity uses the donated vehicle), you can deduct the fair market value.

Saving Both Time and Money

Choosing to donate your used car will also potentially save you a fortune in time. If your car is in less than pristine condition, you won’t have to worry about the costs or personal effort attached to getting it into sellable condition. You won’t have to worry about the effort that comes with listing the vehicle for sale, meeting with potential buyers, haggling over prices, and so forth either. And you won’t have to deal with calling around to auto salvage yards to see who will pay you the best price.

Many charities will even be happy to make their own arrangements to come and get your old car under their own power. Plus, it just plain feels good to donate something. Pay it forward.

Donating Details

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.

How to Substantiate Your Charitable Contribution

auto donations for good causeOf course, when it comes to charitable deductions you plan to claim on your tax return, it’s important to make sure you take all the necessary steps to substantiate your contribution. That means preparing the proper written acknowledgements. Written acknowledgments are especially important when it comes to charitable donations that exceed a value of $250 or more. Make sure your acknowledgment contains all the following:

  • The name of the organization to which you donated.
  • The exact amount of the contribution (in this case, the value of the 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.
  • A full and detailed description of what was donated.

You will also want to make sure that you include a formal statement that no goods or services of any kind were given in exchange for the donation of your car. (The only exception would be for religious services, if applicable.)

Friendly Reminder from the IRS

You should also be aware that the IRS has become more and more wary of write-offs attached to valuable charitable donations of items like automobiles. Some people make it a habit of attempting to claim deductions that really aren’t legitimate. In other cases, the charity itself may decide to sell off a vehicle using methods that can jeopardize your potential benefits as a donor.

Starting in 2005, the IRS stopped accepting many acknowledgments that claimed a given vehicle was to be sold to a needy individual at a price that falls far below the going market value of the automobile. In cases where such criteria apply, the donor will be unable to claim a deduction in excess of $500 unless the gross proceeds of the sale actually exceed that amount. Keep in mind that in such cases, the donor will need to obtain a special acknowledgment from the charity attesting to those facts.

Successfully Filling Out Your Tax Forms

Once the charitable organization of your choice accepts your vehicle donation, it’s time to start thinking about how you’ll fill out your tax forms. Of course, you can get an accountant or a tax professional to help you, but if you choose to do things yourself, make sure you:

  • Use Form 1040 to properly itemize your deductions. (It is available online via the IRS’s official website.) Of course, there are rules and limitations. For instance, your deductions can’t be equal to more than half of your adjusted gross income.
  • Obtain a Schedule A for your 1040. (Schedule A and Schedule B are on the front and back of the same form. However, only Schedule A will be used for these purposes.)
  • Find the section of Schedule A that is labeled “gifts to charity”, as well as the included line set aside for “gifts other than by cash or check”. Here you will enter the market value of your auto donation. Add the value to that attached to other applicable donations if necessary.
  • Should the specified amount exceed $500, then you will also want to fill out and submit Form 8283 (also available at the IRS website). More than $5,000? Fill out Part B of that form and get your car formally appraised.
  • After Schedule A is completed, enter the itemized deduction total into Form 1040 under “itemized deductions."

Taxation Things to Remember When Donating a Vehicle

Records, records, records! As briefly touched upon above, 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…

Also, 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.

Maximizing Your Tax Benefits

In order to receive the highest possible tax benefit for your donation, you may want to choose a non-profit organization that will be using your auto “in direct furtherance of the organization’s charitable purpose”. You can also receive maximum benefits if the charity states that it will be donating the car in turn to a needy family, as opposed to selling it. Explore the possibilities today!

But for most of you that donate a junk car to charity they will dispose of the car to a local auto salvage yard. They’ll get a few bucks from the salvage yard and you will get the satisfaction of knowing you did a good deed.

Junking Generalities

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 you 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 salvage yards 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.

Resources:

http://www.irs.gov/pub/irs-tege/pub4303.pdf

http://www.consumerreports.org/cro/money/taxes/car-donation-deductions/overview/car-donation-deductions-ov.htm

http://www.cbsnews.com/news/car-donations-beware-scams-and-tax-pitfalls/