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Should You Donate Your Car or Sell it to a Junkyard?

Let’s do an apple to apple comparison of donating a car to a charity versus selling a car to your local junkyard.

The first requirement to make any of this worth your time is whether or not you itemize deductions on your tax return. If you file the long form of IRS Form 1040 along with a Schedule A, then you itemize your deductions. If you just take the standard deduction on your return, and you are only interested in which of these two options makes the most sense financially, skip the rest of this article and go sell your car to the junkyard (unless you want to donate your car regardless of whether its a good financial decision, in which you should also just skip this article and call the charity).

So those of you who are left itemize your deductions. You’ve also decided you do not want to try to sell the car yourself. Selling the car yourself is actually the best financial choice, though it is very time consuming, and it won’t work if your car does not run.

If you donate your car, generally you will get a $500 tax deduction or less, which means you will shave $500 off your tax bill. Keep in mind that you can not deduct more than 50% of your adjusted gross income in the year you are filing, but you can carry deductions over for five years. This means that in the odd case that you have a huge tax deduction in 2010 which comes to more than half of your adjusted gross income for 2010, you can carry that deduction over into 2011, 2012 and beyond and still get credit for it. As with all tax advice, please contact your CPA or tax preparer and make sure this general rule applies to you — the tax code is complex and I am not a certified tax preparer.

To really do an “apples to apples” comparison, call your local junkyard and get a rough estimate of what they will take for your car, but more importantly, check if they will pick up your car and tow it away for free. Many junkyards are quite a drive away, and most charities will offer to tow your car for free, so to do the true “apples to apples” analysis, make sure you can get the car towed away with no work on your part for each option. If you can get the junkyard to give you an estimate of what they will give you for the car over the phone (or even after emailing them a few pictures of the car) that’s even better.

You may be a little stunned by what the junkyard offers you for the car. Typically its between $25 and $200, with a lot of quotes coming in around $100. If they throw in the tow for free, then you know what the junkyard option will get you. To know what you can actually deduct if you donate the car, you’d have to wait a bit, and you’ll only know after they’ve sold the car at auction — unless you find a charity that actually uses the cars they take (this makeup about 10% or less of charities), and then you can deduct roughly the Kelly Blue Blue value of the car.

If your car is not running or is very, very old, it may only go for $100 to $250 at a car auction. In that case, if the junkyard offered you, say $100 for the car, it might be better just to sell the car to the junkyard and skip the tax deduction. Skipping the deduction also means you’ve got a bit less paperwork to mess with come tax time.

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