Your Old Vehicle:  Donating It - Trading It In - Selling It Privately

Donating your car - The advantages of a potential tax write-off and the satisfaction of giving valuable resources to the charity of your choice are reasons for considering a charitable donation.  After evaluating your tax situation with your accountant, you need to determine your vehicle's fair market value.  IRS publication 561 "Determining the Value of Donated Property" (pdf file) states, "Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither being required to buy or sell, and both having reasonable knowledge of all relevant facts." Also take a look at IRS Publication 526 (pdf file). Start at page 7 and be sure to read "Contribution of Property", "Determining Fair Market Value" and  "Cars, boats, and aircraft." This document gives very specific information about automobile donations and the IRS.

IRS-Qualified Charities include the Kidney Foundation, Aids Charities, American Cancer Society, Vietnam Veterans of America, Salvation Army, and many others.  Libraries, schools, museums, hospitals, and clinics are also possible beneficiaries.  Most churches, synagogues, temples, mosques, and other religious organizations qualify as well.  The receiving group gives you a letter or receipt describing the gift, its VIN#, year, make, and model.  You are responsible for determining the fair market value, not the charity. The IRS forbids charity-assigned values as a conflict of interest.  If the car is of significant value (over $5000), you'll need to get an independent appraisal (also deductible) to send in with you tax documents. If you donate any vehicle you'll need to fill out IRS Tax Form 8283 (pdf file) when you file your tax return. Instructions for form 8283 can be found here (pdf file).  You will need 3 copies of every document, one for your records, one for your Federal Income Tax Return, and a third for your State Return. Take a look at this 2001 IRS Press Release (pdf file) or visit cardonationcharities.org for more detailed information about your donated vehicle and the IRS

Another way to dispose of your vehicle is by giving it to a IRS-qualified dependent.  The IRS requires that in order to claim someone as a dependent you must contribute a certain percentage of their income and upkeep. The value of the car can contribute to that contribution. 

I have closed many impossible deals by suggesting the car buyer give his car to charity, which resolved unrealistic expectations of trade-in value.  Most new and used car dealers aren't going to suggest this option.  They depend on those trade-ins as another source of revenue.  As an auto broker, I do suggest it to my customers because most trade-ins are not worth my time and trouble.  

Trading in your car - This means selling your car to the dealer you're buying from.  Dealers like trade-ins; they're icing on the cake for many profitable deals.  As I suggested in Dealing with Dealers, don't admit you have a trade-in until AFTER you  negotiate the price of the vehicle you're buying.  The value of factory rebates or low APR financing can easily be erased if your trade-in enters the picture too early.  That's because if they know you have a trade-in, they will tell you they plan to give you a thousand dollars for your car, when they were actually prepared to give a thousand dollars off the list price as part of normal bargaining, even with a customer who had no trade-in.  

The first step is to make sure it looks like a car you would want to buy.  Unless you have experience in car detailing, spend the $100 to $150 for an appointment with a professional car detailer.  Any auto worth $1000 or more will benefit from a doll-up.  If you're really thrifty (cheap), take it to a carwash that features interior cleaning.  For less than $20 your car may look good enough to increase its trade-in value at the dealer.  The idea behind all this cleansing is to give the dealer's used-car appraiser as little reason as possible to deduct for a dirty, mistreated car.  Remove all personal papers and items from the car's interior and glove box.  Leave maintenance receipts, warranty contracts, and owner's manuals in the glove box.  Make sure your detailer cleans and vacuums your trunk.  If you still have them, include your jack and spare tire too, but remove your jumper cables as they may give the appraiser the wrong impression.  If you have a mechanic, see if he can give the car a once-over before you go to the dealer.  Sometimes squealing belts and minor leaks can be fixed temporarily without a large expenditure.  I do not recommend any major repairs.  Save your money for your new vehicle.

When taking in a trade, the used-car manager assesses the condition, age, and mileage of the vehicle to estimate how much the car would bring at a wholesale auction.  He then deducts the expense of auctioning the vehicle (typically $300).  That adjusted amount becomes your trade-in value.  That amount is deducted from the price you've negotiated, to determine your final price.  

Because you're getting wholesale value for your trade-in, the amount will be significantly lower than you might get by selling the car to a private party.  However there are two advantages to trading in your old car.  Most states collect sales tax only on the difference in cost between the trade-in value and the price of the new car.  This helps narrow the gap between the actual (wholesale) trade-in value and what you might get if you sold it privately.  In addition, there are no advertisements to pay for, and no annoying phone calls, window shoppers, test-drives, or potential lawsuits to deal with.  Once the car is given to the dealer and the paperwork is signed, it becomes their problem.

Selling your vehicle online or privately is on the next page>

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