Hey Dave,
I have an old vehicle and was wondering what the best options are for getting rid of it. Should I donate it for the auto valuation guide value of $3,000 or sell it now for $1,500 cash?
Denny
Denny,
This is a great tax planning question, and one that often confronts folks who are trying to decide what to do with their old cars. In general, the answer to your question is that it may depend on your tax bracket. For instance, if you are in the 33% bracket, and the donated value was $3,000, your net tax savings would be $1,000. That is, the donated value is subtracted from your taxable income, so you will net this much savings from what you would have paid in taxes. Therefore, the greater your tax bracket, the greater your tax savings. Note also that you must itemize your deductions on Schedule A to receive any potential tax deduction.
You should also note that you may not receive the values in the automobile valuation guides or fair market value for your donation. When you donate a vehicle to a charitable organization, they are required to issue you a Form 1098-C. If they sell the vehicle without using it significantly for their own work or without making significant improvements to it, then the value listed on the 1098-C is the price the organization was able to sell the vehicle for − and this is the value you may claim as a charitable donation regardless of the values shown in the various automobile valuation guides. Most charitable organizations assign donated cars to a third party for sale, and most often the sale price is far less than the auto valuation amount. This rule applies if the claimed value of the donated vehicle is more than $500. The 1098-C should be issued within thirty days of the date the organization sold the vehicle, and you will need to attach a copy of the Form 1098-C to your tax return.
Keep in mind that there may be non-tax issues to consider as well, particularly if you are not going to use the vehicle as a trade-in on a new purchase. These would include such considerations as the trouble and effort of selling the vehicle yourself, and losing the opportunity to assist a favorite charity.
I hope this helps you make your decision.
Deductibly yours,
Dave