Before people purchase different vehicles, they have to figure out what to do with their used cars. Options include trading in to the dealer, selling the car privately, and donating the car to charity. Each option has advantages and disadvantages, and the right choice for you depends on your financial circumstances.
Trading in to the Dealer
Taking your used vehicle to the dealer and trading it in is often the more hassle-free choice when you’re buying a newer vehicle. You simply park your old car on the lot, let the dealer quote a figure to you, and then apply that figure toward the purchase of a different vehicle.
The downside of that convenience, however, is that you’re going to make less money on a trade-in than you would when you sell your car on your own. Consider how much you’re willing to pay for that convenience. Also, think about whether or not your car has mechanical problems. If fixing up your old car to sell it privately isn’t worth the difference in price, then take it to the dealer and save yourself a headache.
Selling the Car Privately
Some people advertise their used cars in a local newspaper, sales circular, or online site. Others simply grab some shoe polish, write a price on the windshield, park the car in front of the house, and wait for an offer. Whatever method you choose for selling your car on your own, you’re probably going to make some more money than you would on a trade-in. However, you’re also going to have to do some research before you sell, and you’re going to have to make sure to take care of your tax liability.
The Kelley Blue Book and the National Automotive Dealers Association (NADA) websites can be great resources when researching the value of your vehicle. If you’re willing to wait for the right offer, then set your price about 10 percent higher than the car’s value. If you need to get rid of the car quickly, then you can set your price exactly at the car’s value or a little below.
Keep in mind that a car sold for more than it’s worth is a capital gain, and a car sold for less than it’s worth is a capital loss. These terms matter when you’re preparing your income taxes, so you may want to discuss the tax consequences of selling used cars privately with your accountant.
Donating the Car to Charity
Some people choose to donate their used cars to their favorite charities, especially when the cars have little market value. Make sure that you transfer the title over to the charity so that you aren’t held liable for actions taken by the future car’s owner. In other words, don’t leave the “assignment of ownership” space blank when you transfer the car. Also, make sure to assign your car its fair market value, and fill out IRS Form 8283 if your donation is worth more than $500. Finally always obtain a receipt from the charity when you donate your car. Again, since donating used cars carries tax consequences, talk over your options with your accountant.
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