If it is time for a new car then you are probably trying to decide what to do with your old car. In the end, you basically have about three options. What are they?
- Trade it in for a new car: Anybody who has ever traded in a car knows how little one gets for their old vehicle. Dealer’s really don’t like taking in people’s old vehicles and they will often offer you as little as possible.
- Sell it privately. You may get more money for your used car than from a dealership when you sell your car privately, but then there is the process of having to sell it. Advertising the car, then meeting people over and over who want to test drive your car – whom you aren’t even sure if you should trust. And then last, worrying about whether that person will be sure to get the car’s registration properly changed into their name. In most countries, whoever’s name is on the title of a car is held liable for their accidents or tickets – whether you sold the car or not.
- Car title loans– if you have steady funds you may give your car for loans, there is lot of sites where you can pick auto title loans online, choose companies with the best interested rates.
- Donate your car to charity. If you are looking for a tax break and want to help out those who are helping out others, this is a nice way to get rid of your old vehicle. There are two ways people can donate their vehicle’s to charity- one is directly and the other is through a middle-man who helps the charity pick up the car and sell it so that the car can be turned into cash. Because your deduction is limited to what the car actually sells for one often receives more when it is sold through a professional rather than the charity. Plus, many charities don’t want to deal with taking in a used car and just need the cash.
So let’s say you choose the forth option. What other information do you need to know?
When it comes to tax deductions, there’s more to it than your tax bracket. For example, to take advantage of a car donation you must itemize your taxes. A certified accountant can help understand this further. Second, the organization that you donate your car to, whether it is the charity directly or a middle-man, must give you substantiation of the IRS-allowed donation amount within 30 days of when you turn your car over to the them.
A professional knows how this process works and will make sure you are informed about the process of your donation specifics.
A professional also knows that you must file the proper paperwork with your tax return in order to receive your tax credit. With previous tax laws, such receipts were generally only kept by the taxpayer in case the IRS questioned a claimed deduction. With the vehicle donation law today, however, IRS only provides a few exceptions that will allow a giver to claim the auto’s fair market value. One exception can be in a unique situation where for example, say your $1000 car was donated to a food bank who instead of immediately selling it, uses it for several months to deliver meals and other food items to needy families. Eventually, the food bank decides to sell the car for $800. In this case, you could still claim the full $1,000 fair market value of the auto as long as you received documentation from the food bank on not only the sales price, but how the auto was used for nonprofit purposes before the sale. Under the IRS regulations, this is classified as “significant intervening use” of the vehicle that allows the taxpayer to claim the higher deduction.
Other examples of IRS-accepted intervening are when a donated auto is used by a charity to transport clients to doctor appointments or a car given to a vocational school is used in its automotive repair classes.
The IRS also says a donor can claim a fair market value deduction if the charity makes a material improvement to the vehicle. This, according to the tax agency, means major repairs that significantly increase the auto’s value. Material improvements do not include finish work (such as painting, waxing or rust proofing), dent or scratch removal, installation of theft-deterrent devices, or the cleaning or repair of upholstery.
But what if your donated vehicle that you think is worth $1000 sells for only $300? Under the new auto-donation rules, you might be able to claim a $500 deduction. The IRS says this larger deduction allowance is OK in cases where a charity sells a donated vehicle at a price significantly below market value, or even gives it away to a needy person, as long as it’s done to further the charity’s mission of helping a poor person who needs transportation.
Be careful here. Make sure the vehicle did indeed go to a needy individual. Shortly after the vehicle donation rules changes, the IRS discovered that some charities sold autos at auction but reported that the sales, at prices well below market value, were to disadvantaged buyers, to trigger the exception that allows the donor a higher deduction amount. If the IRS discovers such false reporting, it could totally disallow your donation and deduction.
Also keep in mind that regardless of how a charity disposes of your donated vehicle, your deduction cannot exceed the value of your donation. So if your car is worth $150, that is the amount you can deduct even if the charity gives the auto away.
The last thing to consider before donating your car is to make sure the recipient has a tax qualified status. There are many organizations out there who do community work but have not filed for the appropriate tax status. If you are using a middleman, they will do this homework for you.
So if you are feeling generous, don’t want to bother with your used car and need a tax break, giving it to a charity might be the best route for you.
Track All Your Accounts With Personal Capital
Personal Capital lets you see all of your accounts in one convenient place. Sign up now for free.
Latest posts by Mr. 4HWD (see all)
- 8 Products Made in the UK - April 16, 2023
- 3 Additions to Make to Your Morning Routine This Spring - March 31, 2023
- 6 Ways to Live a Happier & More Fulfilled Life - March 20, 2023
Leave a Reply