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The car donation processing business is extremely profitable, and as a result it has attracted a lot of advertising dollars, and also a lot of hype that is only tangentially true. Before you get to swayed by all the glitzy ad copy, here are some of the realities of car donations.
Myth number one: your car will go to a needy person.
Very few donated cars actually end up being given to needy
people. Most of them -- about 90% -- end up at auction houses, where they are
auctioned off to the highest bidder. The auction price is usually less than the
Kelley Blue Book value of the car, and sometimes it is less than half of the
book value. What's more, the auctioneer will take a cut of the sales proceeds,
sometimes as much as half, and so what the charity actually gets as a result of
your donation may be only a very small fraction of the actual value of your
car.
There are some charities that actually give donated cars to
people, and other charities that may take cars on a case-by-case basis to help
with their own programs, but they are harder to find, and you will have to be
more careful about the tax processing documents and the title transfer. That's
because these charities aren't as intimately familiar with car donation as the
major car donation processors are. That doesn't mean they don't know what
they're doing, they just don't do it as often or it on the same scale as the
big car donation processing houses do. But if you are willing to look, you can
find charities that will either use your car themselves or find a needy person
to give it to. In those cases you will get a substantially larger tax deduction
than you would if the car was sold at auction because in the case of an
auction, you can only deduct the amount that the charity actually gets, not the
car's value. But if a charity uses the car or gives it to someone who needs it,
then you can deduct the full "fair market value" of the car.
Myth number two: your car donation will help the charity in
a big way.
While your car donation definitely will help the charity, if
you really wanted to help them, it would be better if you sold the car yourself
and gave them the proceeds of the sale. Again, this is because most donated
cars are sold at auction, and auction prices are much lower than what a private
buyer and seller would agree to.
Myth number three: you will get a huge tax deduction for
donating your car.
The days of massive tax deductions for donated cars are
over. This ended when the IRS laws for donating cars changed back in 2005. The
average income tax deduction from a car donation is about $500. This is because
most cars are sold at auction, but also because most donated cars aren't
terribly valuable to begin with. If your car is worth more than $500, or it
sells at auction for more than $500, you can still get a larger tax deduction,
but you will have to fill out extra paperwork, and you may want to have had the
car appraised before you make the donation, and appraised by an IRS approved
appraiser. You would want to do this in a situation where you were donating a
very expensive car, perhaps if you were an antique car collector who wanted to
thin out their collection.
As mentioned before, if you can find a charity that will
either use your car themselves, give your car to a needy person, or make major
improvements to your card before they sell it, then you see a much larger tax
deduction. But still don't expect your donation to wipe out your tax bill. You
will be able to deduct roughly the Kelley Blue Book or "fair market value"
of your car, but nothing more.
Pamella Neely writes about car donations and how to donate a
car to charity. Seriously consider donating your car if it is worth less than
$750.
Article Source:
http://EzineArticles.com/expert/Pamella_Neely/156399
Article Source: http://EzineArticles.com/5624238
By Pamella Neely
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