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Buy a Car : Donating Car, Dropping Taxes


Cars that have worked for around two decades easily show wear and tear. From overheating engines, wiggling joints, creaking windows and deteriorating paint, cars become less desirable and reliable, as years pass by.

The older a car becomes, it becomes a stronger candidate to become a donation for charities.The practice of participating in a car donation drive is supposedly a no-lose strategy for owners and charities.

Owners that donate their cars qualify for sizeable tax deductions, while accepting charities generates funds that are not normally given through cash contributions. Charities have several options on how to use the donated vehicle.

The car is either used as transportation for food, drive officials to appointments or run errands. The evolution of car donation drives. The Washington-based Davis Memorial Foundation launched the first car donation drive in 1978. The program was launched by the organization to compete for the limited source of donations available in the US.

Davis Memorial only received five cars during the initial year of the program but this was enough to convince other charities to start their own car donation schemes. Shortly after, private fundraising groups emerged and introduced their services to charities. The private entities took care of logistics, which was a major issue for charities and they made the programs profitable and easy to implement.

Charities found a new source of funds and they only had to cash in on the checks that arrive every month. Major charities that run their own car donation initiatives include MADD, the Red Cross, Easter Seals, Big Brothers/Sisters, the American Cancer Society and the United Way.

How much is your car worth?

Several resources in the Internet such as the web sites of the National Automobile Dealers Association and the Kelley Blue Book can help owners determine the fair market value of their old cars. The tax benefit is determined by how the car is categorized in terms of its value.

A car categorized as "low value" value earns the owner a tax exemption of $500. Transactions are easily closed, as additional paperwork is not anymore required. The tax benefit will be restricted to the sale price of the car donation if the vehicle's value goes over $500.

Most vehicles are sold through an auction or dealerships and are typically sold below their actual book value. Cars deemed safe and in good running condition can be used for various charity functions or can be rehabilitated can result to a tax benefit of as much as $5,000 for the owner.

Some issues against car donation

A study from the United States General Accounting Office found that nearly 75% of charities with car donation drives only received 5% or lower of the fair market value of a car indicated in an individual's tax return. One of the main reasons behind the discrepancy is that costs to advertise the car in newspapers and television is deducted from the amount raised from the auction.

Charities will see returns dwindle, as they have to cover costs to tow and overhaul the car's condition and finalize related paperwork. Some charities could receive a flat fee for every donated vehicle regardless of its fair market value. Donors even resort to inflating the fair value of the vehicle in order to maximize their possible tax benefits.

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