Is Donating a Car Better Than Selling?
What four things should your consider when trying to decide to donate a car or sell it? These four very important things are: 1)the value of the car, 2)a charity that could use the car, 3)your tax bracket, and 4)the value of your time.
First, when we say determine the value of your car, this means the "real value". A common mistake, made by many people, is to just automatically assume that they will get whatever dollar value Kelley Blue Book reports. KBB is a good value base but it's sometimes not realistic. You can start by cutting that KBB value by 30% to guess the amount you will most likely get from a buyer. For example: Let's say a 1989 Mercury Topaz - in zip code 15045 with 170,000 miles - in fair condition with standard features - could have a trade-in value of $760 and a private party value of $1525. Cutting that private party value by 30% gives us a new value of $1067.50.
Whatever price you get from the estimated KBB price that has been discounted will have to be cut again based on your income tax bracket. Let's say you are in a 25% bracket, and you come up with a value of $1000 for your car. You will have to discount it further by the income bracket percentage to get the true value. In this case, the car would really only be bringing you $750 net.
Other expenses also need to be factored in. You need to advertise. Let's say you spend $80 on advertising. That means only $670 for the car now. You may also need to have it professionally detailed. Subtract another $70 for that. Now your car is only going to net $600.
Most people want assurance that the car is running correctly before they offer it for sale. To get a mechanic to check it out and write you an information sheet to show the buyer, you will have to invest approximately another $75 or so. Also, the appearance of the exterior can mean a lot toward getting top dollar. You may want to do body work as necessary to give it that pristine appearance. That will be and added expense to insure top dollar.
We are now down to $595 as the value for the car. There may still be other expenses to consider, such as body damage repairs or mechanical repairs that are necessary to be able to sell it. Then, you would be down to even less than that value.
Let's look at the difference in profit potential for donating compared to selling. Most donated cars are sold at auction. The IRS says they must be sold at auction and in use shortly after you have given it away in order to take the full deduction. Your tax deduction will more than likely be $500 or the auction price. If you get only the $500 deduction, you will be netting just $25 less than all the trouble of selling it. Is it really worth it?
To most of us, our time is extremely valuable. You only have a limited amount of time, and probably could find something better to spend it on than fixing up and selling a car for such a small amount of net profit. You will have to arrange you schedule to allow time to handle the sale, plus having to deal with strangers. Is it worth it to you?
What kind of time are you looking at to sell a car? Count on an hour and a half or so making signs and/or producing ads. Another one hour can be consumed in phone calls. Mechanic appointments may take two hours and may be inconvenient with work schedules. Cleaning and detailing may consume another half hour. You have easily just used up five hours before you ever get the car sold.
You can expect to have to show the car five to ten times before you get a buyer. You will have to schedule the showings at the customers convenience, and sometimes will schedule an appointment to show the car and have them not show up. This can eat up the time, and add as much as three hours to the time required to sell your car.
Add it all up and it takes approximately eight hours and about a dozen different steps to sell your car. In comparison, when you donate a car, it's a matter of one phone call before a tow truck comes to haul the vehicle away. The car is put on auction and eventually goes to a person in need. You don't think or worry about it until it's time to claim your tax deduction. So, are you ready to donate your car?
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Filed under: Cars