Should I trade in or donate my old car?

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 Q. My husband and I bought a new car that should be available next month. Although we told the salesperson we were not trading in the old car, we don’t if trading it in or donating it to charity is a better alternative for us. It is a 14-year-old car and although mechanically it is good, the functions of the car aren’t the greatest the greatest. For example, the air conditioner no longer works. Is it better to try and get a trade-in or donate it to a charity?

A. That depends on a number of variables.

Based on the age of your car, the trade-in value will be minimal, said Gerry Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fiarfield.

“A private sale usually nets the most value but you have the hassle of dealing with the sale yourself, which many do not find worth the extra dollars you’ll get,” Papetti said.

So that means you’ll probably get less for a trade-in than you would for a sale.

You should start by learning the value of your car, Papetti said. He recommends you try a web site like Kelly Blue Book. You’ll be able to enter the year, make and model, and mileage. The site will also provide a suggested value based upon your car’s condition.

You should note that using the car as a trade-in will reduce the sales tax on your new car, Papetti said.

IRS Publication 4303 provides a comprehensive summary on the items to consider when donating a car to charity, Papetti said.

“The amount of the tax deduction depends on what the charity does with the donated vehicle as reported in a written acknowledgement you receive from the charity,” he said. “Most charities sell the cars donated to them, and if the charity sells your car, in general, your deduction is limited to the gross sales proceeds they received.”

You’d get the maximum tax deduction equal to the fair market value of your car if the charity uses the vehicle in delivering its charitable program services, he said.

It should be noted that in order to receive a tax benefit from donating your car, you must be able to itemize your deductions, Papetti said. That is, as long as the total of your medical expenses (what is deductible), taxes paid (state, income and real estate), mortgage and investment interest, charitable donations and miscellaneous deductions exceed the Standard Deduction amount which in 2014 is $12,400 for married filing joint, he said. You can add an additional $1,200 if age 65 or older, or blind.

And, you need to realize that you will only receive a federal tax benefit because New Jersey does not allow charitable donations to reduce taxable income, Papetti said.

“Donating the car to a charity will yield the least financial benefit as you will only receive the tax savings, i.e. fair market value, multiplied by your marginal federal tax bracket, not the value of the car, and if you are able to itemize your deductions,” Papetti said. “However based on the age and condition of your car, the trade-in value may be minimal and the non-financial benefits of helping your favorite charity may be more important than the net financial gain.”

Email your questions to moc.p1558568081leHye1558568081noMJN1558568081@ksA1558568081.

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NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.
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