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 car. The fair market value is the amount the car could be sold for in its present condition on the day that 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.