Beware of this used car donation gotcha

As we move closer to the end of the year, you’ll hear the appeals for donating your old car and taking a tax deduction. But you need to beware of a special gotcha that applies here.

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Do your homework before you donate a used car

Historically, you would just get a deduction of the straight value of the car if you signed it over to a charity. So if it was worth $1,000, you got a $1,000 deduction. But now the IRS only allows you to take a tax deduction for the actual amount of money the charity receives for the car.

This can be tricky if the charity disposes of your car through a car broker. In that case, the charity may only get $25 or $50 for your $1,000 car. Your deduction then is limited to that $25 to $50. And to add insult to injury, the lion’s share of your $1,000 car’s value went to the broker — not the charity.

So what can you do? Begin by asking the charity of your choice how they handle disposing of your old car. If they do it through a broker, find an alternative. I suggest selling the car yourself and then donating the proceeds.

Even if your car is basically dead, you can still take it to a junkyard that specializes in extracting valuable metals from vehicles. You may receive a few hundred dollars or so by doing this. Then you can take that money and donate it.

If that sounds like too much work and you’re not concerned about the tax angle, make sure it goes to a legit charitable organization that can really do something with your money.

You can research you favorite charities — learning how much of your donation will go to the intended purpose (vs. how much will go to overhead) at Give.org, CharityWatch.org and CharityNavigator.org.

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