Car Donations Not Charitable at Tax Time

Valuing a car too highly could result in extra taxes and interest in an audit, while being too conservative can mean wasting a deduction, Rosenberg said.

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Liz Pulliam can be reached at liz.pulliam@latimes.com.

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Charity's Cost

Donating a car--or anything else--to charity might sound like a smart financial move. Usually, it's not. Some points to note:

* Although some charities' ads imply otherwise, you cannot deduct on your taxes more than a donated vehicle is worth. You must use the vehicle's fair market value--what a willing buyer would pay a willing seller when neither is under any pressure to buy or sell.

* You can never be better off financially by donating a vehicle rather than selling it and keeping the money, unless you grossly (and illegally) overvalue the donation.

* Whether the convenience of donating a car is worth more than the hassle of selling it depends on how you value your time.

Is It Worth Donating a Vehicle to Save Time?

Here's a guide to deciding whether it is worth selling a car yourself or donating it to charity, assuming you value your time at the same price your employer does. If you enjoy selling cars, of course, you would be more likely to accept a lower return for your time; if you hate selling cars, you would be more likely in insist on a higher return. The following examples divide taxable income by 2,080 yearly work hours for a rough estimate of the value of the taxpayers' time. In all examples, taxpayers are married filing jointly and itemize their deductions. (Charitable donations cannot be deducted by taxpayers who take the standard deduction.) Also, combined federal and state tax brackets are slightly less than the two brackets totaled because state taxes are deductible on federal tax returns.

The car: 1989 Honda Accord LX Sedan, with standard features.

Fair market value: $3,690*

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Taxable Federal State Combined Tax income tax rate tax rate rate savings Hours** $25,000 15% 4% 18.4% $678.96 250 65,000 28 8 33.76 1,245.74 78 120,000 31 9.3 37.4 1,380.69 40 300,000 39.6 9.3 45.2 1,668.52

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* Edmund Publications

** Time spent selling a car that would make donation more cost effective.