We as a nation are an incredibly generous people. Clark recently saw a report that detailed how much more charitable Americans are than the citizens of almost any other society on the Earth. Yet in midst of giving of ourselves, we open ourselves up to scams.
As we move closer to Christmas, you'll hear the appeals for donating an old car and taking a tax deduction. Beware of a special gotcha that applies here.
Historically, you would just get a deduction of the straight value of the car if you signed it over to a charity. So if it was worth $1,000, you got a $1,000 deduction. But now the IRS only allows you to take a tax deduction for the actual amount of money the charity receives for the car.
This can be tricky if the charity disposes of your car through a car broker. In that case, the charity may only get $25 or $50 for your $1,000 car. Your deduction then is limited to that $50. And to add insult to injury, the lion's share of your $1,000 car's value went to the broker -- not the charity.
So what can you do? Begin by asking the charity of your choice how they handle disposing of your old car. If they do it through a broker, find an alternative. Clark suggests selling the car yourself and then donating the proceeds.
Even if your car is basically dead, you can still take it to a junkyard that specializes in extracting valuable metals from vehicles. You may receive a few hundred dollars or so by doing this. Then you can take that money and donate it.