Having trouble deciding whether you should donate a car or sell it? It’s important to keep four things in mind when deciding if you are donating your car or selling it to whoever is willing to pay your asking price. These four things are:
What is the value of the car?
What charity could you donate your car to?
What tax bracket do you fall under?
How much is your time worth to you?
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. That price will be cut again based on the tax bracket you fall under.
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.
This is where your tax bracket comes into play. If you are single and have a gross income of $50,000+ a year, you are in the 25% tax bracket. This means, assuming that you do succeed in selling the car for $1000, after taxes you’ll just be netting $750 from the deal.
And we haven’t even got into factoring common expenses accrued when selling your car. Advertising isn’t free. Let’s say that you ran an ad in Auto Trader magazine for $50 and a local newspaper ad cost $30. Take $80 from that $750.
You may also want your car professionally detailed and cleaned up. This means subtracting another $70 to have your car washed and detailed.
You will want to ensure that the car is running properly. Minus another $75 for a mechanic to inspect the vehicle and write up an info sheet on the car’s condition that you can present to prospective buyers. It’s also important to remember that a car’s exterior condition may be more crucial to its sale than anything else. You may also want to repair any body damage on the car as even the most seemingly insignificant everyday nicks and dings can discourage a buyer.
Do you see how the net value from selling the car now goes from $750 to $525? There is actually potential there for less than $525. What if something is wrong with the car? What if you need work done to fix some dents and scratches?
Now consider this. Most cars donated to charity are sold at an auction. In fact, the IRS instituted new rules in 2005 that stated that the only way to get “full” value after donating a car is if the car is sold at an auction and in use after you’ve given it away. Donating a car to charity will typically earn you a $500 tax deduction or the gross proceeds of the auction value of the car.
Assuming that you donate a car and earn a $500 tax deduction – is the potential of a $25 profit for selling your car worth the hassle?
I think it’s safe to assume that time is extremely valuable and precious to most of us. Selling a car can be incredibly time consuming and will often involve rearranging your schedule, dealing with strangers and answering a lot of questions.
The phone may ring at inopportune times with a prospective buyers on the other end. Let’s figure, just for an estimate, you will spend one-hour fielding phone call inquiries.
You may spend an hour and a half composing ads or signs. An appointment with your mechanic or a body shop may take two hours and involve juggling around your work schedule or finding alternative transportation. Having the car cleaned and detailed may involve thirty minutes between scheduling, travel and interacting with the service provider.
You will have to schedule times for people to come see the car, check under the hood and test drive the vehicle. You might even schedule with someone and have them no-show the appointment. Others not only want to look at the car themselves but will also request that you take the car to a mechanic that they trust for an inspection. And, most of the time, people with these type of demands are the ones who don’t close the deal! It is said that someone selling a car can optimistically expect five to ten inquiries that go nowhere before the car is sold. Let’s estimate that a total of three hours is spent meeting with people.
Add it all up and it takes approximately 10.5 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?
Pamella Neely writes about how to donate a car and car donation issues for DonateACarToday.com.