Selling Tips

What to do with the 1987 Honda Accord which has served me faithfully and gotten me out of (or perhaps into?) more than a couple of scrapes during our five years together. Now that I'm driving a different car every month (thanks to this awesome new gig at a company called Edmunds.com), I find that keeping the careworn vehicle has become more of a hindrance than it's worth.

So what to do? Keep it and deal with the hassle of finding parking? Sell the car and have to deal with prospective buyers? Leave it abandoned in a field somewhere and report it as stolen to my insurance company? Just kidding.

Then my inner genius spoke up: I can donate the car to some charity, improve my karma, and have a sweet tax write-off!

Sounds so perfect, right? Deceptively so, as it turns out. First, I had to do my homework. I'll try and save you some time and trouble by sharing what I learned. What can I say - I guess I'm feeling charitable.

The first thing you want to verify is that the charity of your choice is eligible to receive deductible car donations. The organization should be able to provide you with an Internal Revenue Service Determination Letter that says they qualify as being a tax-exempt charity. This does not apply, however, for religious charities such as churches, which need not apply for exempt status.

After determining that the charitable organization will indeed serve your own tax purposes, you want to make sure that it's on the up and up. You should ask for copies of its annual report and IRS Form 990, as well as contact your local Better Business Bureau to check it out further.

You might also want to find out what exactly will happen to your donated car. Some organizations will use the cars themselves, others will sell them directly to raise money, while still others will use an outside seller, receiving either a flat rate or a percentage of the profit on the sold vehicles to earn their money. The charity should be forthcoming with this information, whether or not you ask for it.

Finally, don't forget your receipt. (Like you'd really forget - who wants to mess around with the IRS, right?) It is up to you as the donor to determine the accurate value of the vehicle. The IRS directs taxpayers to consider criteria such as accessories, mileage and condition for determining the appropriate value of their vehicles. The TMV Used Vehicle Appraiser (http://www.edmunds.com/tmv/index.html) asks for these and other facts about each vehicle, then provides a valuation report that can be kept with tax papers for use in the event of an audit. The cash value of a vehicle can loosely be defined as the amount it can be bought and/or sold for if neither the buyer nor the seller is under any pressure. If that value exceeds $500, you will need to fill out the IRS Form 8283. If it's over $5000 (that should get you out of a few years in purgatory), it will be necessary to provide a qualified appraisal of the car on paper.

Before you actually go through with this, you should ask yourself whether or not it's in your own financial interest to donate your car to charity. This depends largely on your tax bracket. If you're up in the 30 to 40 percent range, and donating a car that's in relatively good condition, you could benefit from a sizable write-off. If you've got an old clunker worth a couple thousand bucks at the most, however, and you're down in the 15 to 20 percent bracket, it might behoove you to make the time and energy to actually sell your car yourself and walk away with a decent amount of cash in your pocket. The tax dollars you would save by claiming it as a deduction would be negligible. But don't expect any special favors from the gods if you choose to go the avaricious route.

So I'm sure you're on tenterhooks to find out what I ended up doing with my own car. Well, the thing is...I still haven't done anything. It is not going to be as easy to get rid of my trusty Accord as I thought it would be. What I most likely will end up doing, however, is selling it. Eventually. After all, I don't think I need to be too worried about the state of my soul right now.

What was that - did lightning just strike?

For more information on donating your vehicle to charity, check out our article Planning to Donate a Vehicle For Tax Deduction Benefits?