Owning a car has always been a fairly costly prospect. But in 2023, the average annual cost of owning a car rose to $12,182, according to AAA. That’s over $1,000 a month, and it’s a sharp increase from 2022, when the average yearly cost to own a vehicle was $10,728.

Of course, it’s easy to see why owning a car costs so much. Between auto loan payments, maintenance, fuel, and car insurance, you could easily spend a small fortune just to get around town. And so if you have an alternative means of doing that, such as public transportation, then you may be considering unloading your car.

If that’s the case, you have choices. You could try to sell your car and walk away with some cash. But if your car is older and you don’t expect it to command a very large sum, then donating it to charity could be a better bet.

But if you’re interested in going the latter route, it’s important to understand the process. Here’s what you need to know.

What will a charity do with your used car?

Capital One says the way your donated car is used will hinge largely on its condition at the time of your donation. Some charities will accept a car in any condition, strip it for parts, and sell those to raise money. Or, they’ll sell your car as-is and get whatever money they can for it. If your car is in better shape, though, then a charity might decide to use it to help with operations.

Let’s say there’s a charity that delivers meals to people in need. If you donate a car that’s drivable, that charity may decide to keep your car and add it to its fleet.

Know how your car will be used

Knowing how your donated car will be used is important, as that will impact the sort of tax break you’re eligible for when making that donation. Capital One suggests asking a charity what its plans are ahead of time, so you can decide whether it’s the right place to donate your car.

If your car is sold, then the deduction you’re entitled to will hinge on its sale price, though you can generally expect to eke out a minimum deduction of $500 as long as your vehicle runs. However, if the charity decides to use your car rather than sell it, then your deduction may be based on your car’s fair market value at the time of your donation.

Capital One says that once you donate a car, the charity you give it to is required to notify you in a timely fashion about how it uses or sells your vehicle so you can take the appropriate deduction. If you donate a car and don’t hear from the organization you gave it to within a month, be sure to follow up.

All told, donating a car you no longer wish to own could be a smart financial move. But make sure you understand what tax benefit you stand to gain in the process.

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