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SALT LAKE CITY — Charities step up their appeals for donations this time of year, and that includes groups that say they'll take your car no matter what shape it's in.
Advertisements say, "Donate a car — get a tax break." Technically it's true, but the tax deduction is probably a lot smaller than expected.
“The way you can deduct that car has changed,” said Shane Stewart, a financial planner at DMBA. “It’s now based on what the charity can sell that for.”
Donating an old car to charity used to be straightforward. Donors could claim the car's fair market value. That ended in 2005, when Congress decided too many taxpayers were claiming much more than their clunkers were worth.
Now, donors must wait until the charity sells the old car, and tells the donor in writing how much they got for it.
“If you think this is a clean way to get rid of a car and get a tax deduction, there is some work involved. You need to be aware of that,” Stewart said.
While the car may be worth $2,000, if the charity sells it for $800 the donor can only deduct $800 from taxes. But, if the donor is in the 25 percent tax bracket, that $800 deduction means they will get $200 back. If they’re in the 10 percent range, they will get only $80 for the car.
If a donor claims a donated car, he must itemize deductions.
“If this charitable contribution helps you be able to itemize but makes it worth your while, it might be a good option for you,” Stewart said.
Another option: Stewart suggests trying to sell the car on KSL.com or some other website, but instead of $2,000, price it lower to make it more attractive.
If it sells, split the proceeds with the charity. Donors will get more than they would from the tax deduction, and the charity gets a nice donation without having to sell the car.
But if the car is in really bad shape, and the owner does not want to spend what it would take to make it sellable, giving it to a charity might be the better option.
With any donation, the tax deduction should not be the No. 1 priority, according to Stewart.
“Charitable intent should be your first and primary objective,” he said.
