Should I Donate or Sell My Car?

Should I Donate or Sell My Car?
••• male hand holding car key with new black car in background image by .shock from

You’ve done what all consumer advice experts suggest and drove your car until the bitter end, until the cost to repair it exceeds or comes close to its value. You know it’s time to get rid of the car, but the question is whether it makes more sense for you to donate your car to charity and take the tax write-off or try to sell it.

Donating vs. Selling

Many charities are probably happy and grateful to receive the donation of a car. Not only are you doing a good deed going this route, you are saving yourself the time, hassle and the possible repair expense that comes with selling. The big plus with a sale, of course, is you get some money. While it’s true that you get a tax deduction for donating your car, since the Internal Revenue Service changed its rules in 2005, you cannot deduct as much as you once could.

Charitable Tax Deductions

What donors used to be able to deduct, prior to the 2005 change, was the fair market value of their car, which usually proved to be a good deal. The IRS discovered that many donors, instead of deducting the fair market value, were deducting the suggested retail price instead, according to Edmunds. That number was higher than the fair market value, so this program was costing the IRS too much money. As of 2011, the IRS rule is that to deduct more than $500 on a vehicle donation, you must wait until after the sale of the vehicle by the charity. You would include proof of the sale with your tax return.

A Tough Business

Unfortunately, charities generally don’t fare too well on your used car donation. What charities typically do with the used cars they receive is to sell them at auction, usually winding up with little money, especially if the charity has to use an intermediary to sell the car. An individual charity might not gain much on a used car donation, but commercial fundraiser centers that give some of their profits to charity can do well.

Bottom Line

If you have a car that is still worth more than $1,000, try to sell it. If your car is worth a few hundred dollars or less, consider donating it to a charity or to a commercial fundraising enterprise. One loophole does exist, however, in allowing you to deduct the full market value of your car that is worth $1,000 or more. If the charity keeps the car to use, you get the full deduction. Determine your car’s value online at Edmunds or Kelley Blue Book. If you need help with your decision, contact an accountant or inquire with the IRS.