Is Donating Your Car More Expensive Than Selling It? Let's Find Out

If you have an older, high-mileage vehicle, it may not have much resale value. Selling the car could be a huge headache with little payoff.

One alternative: donating your car to charity. But what are the hidden costs? We'll walk you through how donating a car affects your finances.

What are the costs of donating a car?

You probably won't have to pay money to donate your car. Even if your vehicle is in poor condition, chances are that a charity will gladly accept it. Many will also assist you with the paperwork and pick it up for you (even if it needs towing) for free.

Some expenses you could save on if you're donating your car:

• Auto insurance and tag fees: The average cost of insurance in a medium-cost state for a six-month, liability-only policy is $102 per month, according to Progressive. Keeping a vehicle properly registered is another factor to consider. Donating your vehicle can save you money on auto insurance premiums and registration costs, especially if your policy or tag is due for renewal soon and you don't have time to sell the car.
• Towing: If your car isn't driveable, you may have to pay to have it towed to a car lot or junkyard. Towing costs can vary widely, but J.D. Power reports that the average cost of towing a vehicle is $109 nationwide. Donating your car could save you on this expense, as many charities will tow vehicles for free.
• Your time: Selling your used car to a private third party will often fetch you a higher price than going through a dealership. But advertising the car will cost money -- and fielding inquiries from potential buyers, showing the car, haggling, and dealing with paperwork can eat up a lot of time. Only you can determine the value of your time. But consider:

1. How much you earn per hour
2. How many hours you think it would take to sell your car
3. How much you think someone will pay for your car

If A x B is less than C, donating may be the better option. For example, if you earn $50 per hour and you'd spend 15 hours selling a car that likely wouldn't earn you more than $500, selling may not be worth your time.

Of course, it's worth doing some research to see how much money you can expect if you sell your car. Pricing tools like Kelley Blue Book and Edmunds are valuable resources.

Donating a car can be a great way to help a charity whose work you value. Bear in mind, though, that while used car prices have fallen in recent months, they're still more than a third higher than they were in January 2020. Older used cars -- think those that cost less than $15,000 -- remain in short supply.

The big cost of donating your car is the fact that you can't sell your car. Even if you don't have the flashiest ride, you may still be able to sell it for a decent price. That's especially important to consider if you'll be financing your next car, as having a trade-in will lower the amount you need to borrow.

What about the tax deduction?

It's true that donating a car could help you score a tax deduction -- but you'll need to itemize instead of taking the standard deduction. If your itemized deductions don't add up to more than the standard deduction -- which is $13,850 for single filers and $27,500 for married couples filing a joint return in 2023, and $14,600 and $29,200, respectively, in 2024 -- you're better off going with the standard deduction.

If you itemize your deductions on your tax return, here's how donating a car affects your taxes:

• If the charity sells your vehicle for over $500: You can deduct the amount of the sale price. If your car has a fair market value of $3,500 but the charity only sells it for $2,500, you can only deduct $2,500.
• If the charity sells your vehicle for $500 or less: You can deduct $500 or the fair market value, whichever is less. If the fair market value is $600 but the charity sells your car for $400, you can deduct $500.
• If the charity keeps the car or sells it at a discount to someone in need: You can deduct the fair market value of the car. Going back to the first example of the car with the fair market value of $3,500, you'd be allowed to deduct the full $3,500.

If your car donation is valued at over $500, you'll need to submit IRS Form 8283 with your tax return. You'll need to complete Part A if the deduction is between $501 and $5,000. For deductions of more than $5,000, you must submit both Parts A and B. For deductions of $5,000 or more, you'll also need to get an independent appraisal.

Because of the complicated rules for deducting a car donation, there are a lot of ways you can run afoul of the IRS. Check with a tax adviser if you're considering a tax-deductible car donation.

Donating vs. selling: A third option

If you think your car has decent resale value and you're willing to donate it, there's a third option: You could sell the car, then donate the proceeds to charity -- which may help the charity even more, since you can typically get more when you sell your car than a nonprofit would get at an auction.

Going this route will require a donation of your time, as well as your vehicle proceeds. But it could be the best option if you want to maximize the value of your donation.