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Okay, this is probably a silly question but I searched and only came up with answers about DONATING a car.

I have a 1997 Ford Ranger I want to sell. I expect to get about $2,000 for it (hopefully). I purchased it new in 1997 for $20,000.

When I sell it, what is my tax liability? Will I owe tax? Of what kind? I don't think it can be capital gains, since I'm selling it for a tenth of the purchase price, but I'm not naive enough to think I WON'T owe taxes, and when I searched the IRS website I got about a billion hits on the changes in the DONATION laws.

Which actually kind of stinks, because I WOULD have donated it if I could have deducted KBB value, which is almost $3500 (being completely honest and calling it "fair" condition, which it is!!!) but the way it works now, I'll get a max of $500 and that's it.

So how would it work if I sold it?

Thanks!!!

GSF
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When I sell it, what is my tax liability?

No tax liability. If you sell it for $2000, it's all yours to keep.

I WOULD have donated it if I could have deducted KBB value, which is almost $3500

Then you WOULD have been making a mistake. If you'd donated it and deducted a Kelly Blue Book value of $3500, that wouldn't have put $3500 in your pocket. It would've reduced your taxable income by $3500, which would have put maybe $500-1000 in your pocket, depending on your tax bracket. From a dollar standpoint, selling is always better than donating.

Lorenzo
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Then you WOULD have been making a mistake. If you'd donated it and deducted a Kelly Blue Book value of $3500, that wouldn't have put $3500 in your pocket. It would've reduced your taxable income by $3500, which would have put maybe $500-1000 in your pocket, depending on your tax bracket. From a dollar standpoint, selling is always better than donating.

Lorenzo


Honestly, I wasn't purely after the $$$$. From my perspective, donating the care reduces my tax liability by $3500, which in my bracket, from previous experience, ends up reducing my total tax payment by about $900-$1100 or so.

To be honest, that was just fine with me AND I get the mental "lift" from doing a decent thing for a charity. To me, even if the total $$$ payout to me was less, I also felt good about what I was doing. That was worth the "loss" of the cash money.

But to reduce my deduction to $500, which ends up netting me maybe $125 at best??? for a perfectly viable car that actually probably IS worth close to KBB value - that's a bit much for me.

I don't want to go through the hassle of selling my car privately and I have already purchased my new one (so I couldn't use this as trade in at that point, I still needed it), so I'm going to a "cash for cars" place. I won't get top dollar (which is why I'm looking for $2,000 rather than $3,000), but the sale will get done in less than two hours, not days and days.

From a dollar standpoint, yes, selling IS always better than donating, but from a hassle standpoint, donating (where they pick up the car from your house and are happy to have it) is a lot simpler, AND, from a karma-worldview, the donating is better there too.

Unfortunately, my finances aren't as flexible as they used to be, so the difference between $1000 and $125 means a lot to me.

Thanks for the answer, though!!! Do you know WHY I don't owe taxes? It seems too good to be true!!!
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Thanks for the answer, though!!! Do you know WHY I don't owe taxes? It seems too good to be true!!!

Not too good to be true. Consider yourself being screwed. You have a loss on the sale. You bought for $20,000 (I don't remember the exact amount from your original post) and hope to sell for $2000. That's an $18,000 loss which you can't deduct. If this transaction went the other way, that is, you bought for $2000 and sold for $20,000, you would be paying tax on the $18,000 gain.

Ira
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from a a hassle standpoint, donating (where they pick up the car from your house and are happy to have it) is a lot simpler

I'll grant you that - selling can be a hassle, while donating is hassle-free.

AND, from a karma-worldview, the donating is better there too.

Not so fast there, grasshopper! If the charity of your choice actually got the $3500, then yes, a donation was a great idea. But it almost never worked that way. Almost always, the charities immediately sent the car to an auto wholesaler, who in turn sold it at auction. In the end, the charities might net $100 per car. And in many cases, the charities were little more than a front for an auto wholesaler: they lent their name to legitimize the whole process, and got a cut of the action - again, maybe $100/car or some such. In short, the auto-donation thing has been a scam of the first order for many years, with the screwee being the U.S. government (and indirectly, the U.S. taxpayer). All they've done in changing the rules about auto donations is make it so that the amount of the deduction corresponds to the amount the charity actually receives, instead of some tricked-up blue book value.

Lorenzo
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All they've done in changing the rules about auto donations is make it so that the amount of the deduction corresponds to the amount the charity actually receives, instead of some tricked-up blue book value.

But doesn't that fall into the same concept as ItsDeductible.com? For example, they allow fairly generous (from my standpoint) deductions for a LOT of things, which, if donated to Goodwill or Salvation Army, they would sell it for nowhere near as much.

Maybe that's different because the actual donation is made to a charity whose entire premise is to provide those goods directly to those who need them at those prices?

I don't know... I suppose it's not as if the charities are fixing up the cars and then selling them at a deeply discounted price to the families who need them.

I agree, it was a very bad idea to allow vehicles that hadn't run in years, had major issues, and were essentially scrap-heaps the "full" blue book value deduction. That's a scam.

But when you're donating a vehicle that could have a third-party appraisal value of X, and instead of X, you receive a $500 deduction at best, where's the incentive to donate in the first place, UNLESS the vehicle is ACTUALLY worth less than $500?

I get that it was a major scam, I really do. But for those people who donated vehicles and deducted their value in the same spirit that they would deduct donated furniture, etc., this put a real damper on the whole process.

I guess the idea is that blue book values of donated cars aren't always "tricked up."
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But doesn't that fall into the same concept as ItsDeductible.com?

Not as of Jan 1, 2005. The tax laws changed specifically regarding donation of cars. If the charity immediately sells the car, only the amount that the charity actually received is deducted. It is expected to be a significant damper on donations.

The other problem is that charities were not making it clear that if you do not itemize, the "deduction" is worthless.

Debra
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It is expected to be a significant damper on donations.

I have noticed that the number of radio ads from charities asking for your car has gone WAY down since the beginning of the year...
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But doesn't that fall into the same concept as ItsDeductible.com?

I've never used ItsDeductible.com, and I have no idea how close their prices are to FMV. But in general, things like used clothing and household goods should be valued at thrift shop prices - that is, what Goodwill or Salvation Army would sell them for in one of their stores. If ItsDeductible.com has prices that are signficantly higher than that, then shame on them.

If indeed your car is worth $3500 and the charity sells it for that amount then you ought to get credit for a $3500 donation - and that's the way it works from now on.

I guess the idea is that blue book values of donated cars aren't always "tricked up."

Ok, that was a poor choice of words on my part. The blue book value itself isn't "tricked up" - those numbers probably do accurately reflect average trade-in, wholesale, and retail prices of used vehicles. It's just that the charity rarely got anything close to that amount, which means that itemized charitable deductions were sometimes grossly inflated.

Lorenzo
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I don't want to go through the hassle of selling my car privately and I have already purchased my new one (so I couldn't use this as trade in at that point, I still needed it), so I'm going to a "cash for cars" place. I won't get top dollar (which is why I'm looking for $2,000 rather than $3,000), but the sale will get done in less than two hours, not days and days.

From a dollar standpoint, yes, selling IS always better than donating, but from a hassle standpoint, donating (where they pick up the car from your house and are happy to have it) is a lot simpler, AND, from a karma-worldview, the donating is better there too.


But you can always sell the car and then donate the $$$ to the charity of your choosing. You dollars might even go farther that way due to the way a lot of charities turn around and sell the car to wholesalers for pennies on the dollar. (And you'd still get the deduction.)

But, I totally understand the convenience factor. I, too, have donated a car in the past (a junker <$1000) because it wouldn't have been worth the time and effort to sell it privately.

sjfans
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