Which is better a $2,000 cash sale of an older vehicle or a $2,000 tax deduction for donating it?

Question

I bought a new SUV last week but I did not trade in my older SUV. I listed for sale but now I'm thinking maybe I should donate it. The Blue Book Value is about $2,700 but there about $700 in break repairs needed. So I listed it for $2,000 in Auto Trader. Would it be better to donate it to charity for the deduction?

Answer 1

$2,000 cash is better.

Answer 2

First, do not sell or donate a vehicle that needs brake repairs in a state where the seller is liable for an accident that results from selling or donating a vehicle in need of brake repairs. Either (a) repair the brakes and then sell it for $2700, (b) repair the brakes and then donate it, or (c) sell or donate it in a state whose laws are such that you will not be liable if the brakes are not repaired and someone crashes. At the very least, make sure to fully disclose the situation involving the brakes and have the recipient of the vehicle sign a document that says that they are aware that the brakes need repairs and will not allow it to be driven until the brakes are repaired. Talk to an attorney about how to draft this.

Now for your question:

If you sell it, you get the full $2000 (or whatever the buyer pays).

If you donate it, it only reduces your taxable income, so you save only a percentage (whatever your tax bracket is). For example, if you deduct $2000 and are in the 25% bracket, it lowers your taxes by $500, so you are $1500 worse off than if you sold it. The warm feeling that you may get from helping a charity is not taxable and only you can decide if it is worth $1500.

Also, if you donate it the charity and the charity sells it, you can only deduct the amount for which the charity sells it, even if that is less than the amount for which you would have sold it. In this case, both you and the charity will have more money (and the IRS less) if you sell it and donate the money than if you donate the vehicle. (If the charity uses the vehicle instead of selling it, then you can deduct the value.)

Answer 3

It is a personal choice. I donate my old beaters because I don't want to deal with selling it. If your old car sells for more than $500, the charity has to send you a document showing what it sold for, and you can donate that amount. For a car that sells for $500 or less you can just deduct the value of your donation with no documentation.

If you can find a buyer for $2,000 you are far better off selling the car. You will pay no tax on receipt of the $2,000 since your basis in the car is more than that. If you donate it and the charity manages to sell it for $2,000, you will get a tax reduction of your tax bracket X $2,000. Far less than the cash from selling.

Answer 4

You'll probably do better selling it and donating the cash to a worthy cause.

First off, the rules have changed on donated vehicles. The charity has to sell it and send you a letter showing you what it sold for. You get a deduction for that amount. With an older vehicle that needs repairs, most will simply wholesale it off, usually for less than you could sell it for. In your case, you might be looking at $1,000 at best.

If you sell it and donate the proceeds you'll get the full value of the donation AND they'll get more $$$ to use for a good cause.

Answer 5

With the sale, you'll have the whole amount in hand. With a donation, your tax savings would be at most the fair market value of the car times your tax bracket, and if the organization sells it for less than FMV, your deduction would based on that lower amount. So if you donate it, the most you could possibly save on your taxes is $700 and that's only if you are in the top tax bracket of 35%.

Answer 6

If you donate it to Charity for the deduction-you win twice because you still benefit financially yet you get to help a Charity which is a great feeling. I would -in your shoes- donate the vehicle to Charity if you don't need the cash right away. You're a nice person to think of doing this.

Answer 7

Cash is better from a finacial standpoint. If you donate, It'll only mean about an extra $100 on your tax return depending on your bracket.

But you should also consider the time it takes to sell it and the people you'll likely have to deal with when selling a $2000 car. Plus, if you donate it, it could mean transportation for someone who otherwise could not afford to own a car.

Answer 8

If you sell it for 2G, you have to pay taxes on the money you made.
If you donate, you get the write-off. You should look into what you can claim it's worth though, before deciding.