Why do Most Charities Sell Donated Cars Instead of Giving Them Away?

This is a very common question asked by a person who wants to donate car. Many donors will say that it just needs some repair. After that, it would be good for someone who needs a car. It is an admirable theory. Unfortunately, there is a big difference between the theory and reality.

That reality is twofold. First most cars are donated because they either have high mileage or some problem the donor does not want to pay to fix. Second, cars are complex machines. They are not built the way they were a generation ago when all you needed to fix your car yourself was a few tools and a manual. Now, you have to go to an auto repair shop for even minor problems because it takes expensive diagnostic equipment and specialized tools to fix them.  

One choice for the charity would be to just give the car to someone in need and let them make any necessary repairs. A person who does not have the funds to purchase a used car themselves probably does not have the funds to make repairs either. Unless that person is a mechanic and has access to tools, they most likely will not be able to make the repairs themselves. When you add to that the cost of car insurance, gas, license fees, etc. it can be very overwhelming for a person with limited means. In this scenario, the car might end up just sitting in the yard for a long time while the person tries to save the money needed to put it on the road.  If they are never able to do that, the car donation will essentially be of no benefit.

Of course, the charity could make all the necessary repairs to the car themselves and then give it to the needy person. In some cases, the cost of repairs exceeds the value of the car. Many charities are not in the financial position to absorb those costs especially given the current economy.  For these reasons, it is usually much more practical for charities to sell donated cars. It also provides them with some much needed cash to help further their mission.

Contrary to popular belief, selling a car donation does not have a huge impact on the amount the donor can claim for their tax deduction. Basically, the donor is entitled to claim the greater of $500 or the amount the charity sells their car donation for. If the charity gives the car away, the donor can claim the fair market value of the vehicle. The fair market value is the amount the vehicle could be sold for in its present condition on the day it is donated. If the vehicle does not run, most pricing guides like the Kelly Book Blue will place it under the poor condition category and will not even assess a fair market value to it. In this case, the sale of the car by the charity may provide the donor with a better tax deduction.

Why Don’t Charities Give Donated Cars to Families That Need Them?

Although some charities do actually give some donated cars to needy families, they are in the minority. Most charities do not give away car donations. The reason can be summed up in one word; liability.  You or I can donate car to someone and the chances of there being any negative consequences are pretty remote. However, there are many differences between a person and a charity.

If you donate your car to someone and that car breaks down the next day or the next week, it’s not your fault since the transaction is considered to be “as-is”. However, if a charity donate car to someone and that car breaks down, the charity will probably be liable for the repairs. The difference is that a charity is a business and not a person and as a business it has to abide by the same laws as a car dealer. Whether they sell or donate car to someone, that car has to pass all safety and emission inspections. They are not able claim an “as-is” car donation.

Besides getting a tax deduction, most donors donate car for one of three reasons. First, the car has some major body damage or mechanical problem which the donor does not want to fix or can not afford to fix. Second, the car has very high mileage and the donor wants to get rid of it before it completely breaks down. Third, the donor is tired of having to make constant repairs. In all of these cases, the charity is required to repair the car before they can donate car to a needy person. Car repairs can be very costly and in many cases can exceed the value of the car. That is one major reason why most charities sell car donations directly to used car dealers or to parts yards either directly or through auctions.

Another difference between you and a charity is that you can donate car to someone who does not have car insurance or license plates. A charity cannot, anymore than you could buy a used car and drive it off the lot without it having passed inspection, without license plates on it or without it being insured. It is the same concept.

When you consider the costs and liability issues involved it is not hard to understand why most charities choose not to donate car to needy people.