The options for getting rid of a used car depend on its value and your priorities. Many charitable organizations accept used cars, regardless of condition, as donations. You may also choose to give it to a friend or relative. Of course, selling or trading in your car are also options. Each method of getting rid of a car has its own benefits and drawbacks.
Selling a car means that, as the original owner, you don't have to pay any tax. The buyer is responsible for sales tax on the actual sale value of the vehicle, and you aren't liable for penalties even if the buyer never pays. This may make selling a car a better option than giving it to a friend or family member, which could cause the gift tax to come into play. According to the IRS, any gift worth more than $13,000 is liable for gift taxes, as of 2010. As the giver, you're responsible for covering these taxes when you file your tax return.
Giving a car to someone you know, or donating it to a charity, means you lose your chance to earn extra cash. In nearly every case, the car is going to be worth significantly less than you paid for it, even if it's only a few months old. Still, selling the car for cash can help you recover at least a portion of the original cost, and may provide the money for a down payment on your next car.
Donating a car to charity may seem like a safe humanitarian act. But not every charitable organization uses its funds or donations to maximum benefit. Some charities pay for the cars they receive, reducing their ability to profit. Donating a very old car with little cash value may cost the charity more to transport, store and process than it can sell it for, thus costing the organization money. Selling your car gives you cash, which you can use to make a donation to any charity, including one that doesn't accept vehicle donations.
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