Determine Whether it is Best to Donate or Sell a Car
What do you need to keep in mind when deciding whether to sell or donate a car you are ready to get rid of? One thing you need to consider the value of the car. Another thing to consider is whether there is a charity to which you might like to donate it. Also, consider you tax bracket and how it will affect your net profit, as well as considering what you time is worth to fix it and advertise.
To determine the value of your car, you need to consider the real value of it. Many assume the Kelley Blue Book value is the real value of your car. It is not. The KBB value is only a suggested value. You need to decrease that estimate by 30%. Let’s use the example of a car that has a private party value of $1525. Cutting that value by 30% gives the new, more realistic value of $1067.50.
Depending on your tax bracket, you will have to cut your net profit by whatever percentage you fall under. If you are in the 25% tax bracket and you get an offer for $1000 for your car, just know that after you decrease it by the 25%, you will only have a net profit of $750. You need to take this in to account when determining the net profit. This may well affect your decision as to whether to donate or sell.
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. Take away 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 body damage on the car as even the most seemingly insignificant everyday nicks and dings can discourage a buyer.
It is easy to see how your car goes from the $1000 you initially valued it at to the $525 it is not worth to you. You may even have to lower the net value even more if you have to fix a mechanical problem. If you have to do any body work to fix dents and scratches, you will have to subtract even more. Can you see how the value rapidly decreases?
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?
To most of us, our time is extremely valuable. You only have a limited amount of time, and probably could find something better to spend it on than fixing up and selling a car for such a small amount of net profit. You will have to arrange you schedule to allow time to handle the sale, plus having to deal with strangers. Is it worth it to you?
What kind of time are you looking at to sell a car? Count on an hour and a half or so making signs and/or producing ads. Another one hour can be consumed in phone calls. Mechanic appointments may take two hours and may be inconvenient with work schedules. Cleaning and detailing may consume another half hour. You have easily just used up five hours before you ever get the car sold.
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.
It is plain to see how at least eight hours are consumed in selling your car, with only $25 expected profit. Can you really afford it? If you donate the car, you just have to call someone to come tow it away to auction and you are done. You never have to think about it again until income tax time when you take that deduction. It is obvious that donating your car makes much more sense than selling it.