Got a clunker to unload? Sometimes a charity is better choice

— -- In the past, if you owned an old car that mortified your children and leaked more oil than the Exxon Valdez, you had two choices: sell it or donate it to charity. Now, the government's "cash-for-clunkers" program has added a third option that has generated a lot of traffic in car dealers' showrooms.

The federal Car Allowance Rebate System (CARS) program gives car buyers who trade in their gas guzzlers a rebate of up to $4,500 toward the purchase of a new, fuel-efficient vehicle. The program is designed to stimulate car sales and get environmentally unfriendly cars off the road. Dealers are required to disable the engines of the used cars.

The program has been wildly successful, which means a lot of used cars that might have been donated to charity have met a grisly junkyard death. Some charities say they've seen a decrease in the number of donated cars since the program was launched last month. That's not surprising, because the average tax deduction for most donated cars is about $500. If you're in the 25% tax bracket, that works out to a tax savings of $125, which won't even cover insurance on a new set of wheels.

Still, you shouldn't automatically assume that CARS is the best way to dispose of your clunker, says Bill Visnic, automotive expert for consumer website Edmunds.com. Things to consider before you drive your beater to the dealer showroom instead of a local charity:

•Whether your vehicle meets the criteria for the program.

Even if your car hasn't had that new car smell since 1989, it may not qualify for the program because it doesn't meet the government's criteria. To qualify for CARS, your vehicle must have an EPA city-highway combined rating of 18 miles per gallon or lower. In addition, the vehicle must be drivable, have been manufactured in model year 1984 or later, and must have been continuously insured by and registered to the same owner at least a year before trade-in.

Some real clunkers will miss the cut because their combined mileage rating exceeds the cutoff, Visnic says. Some charities believe the CARS program will increase donations, because consumers will donate cars that don't qualify for the program.

•Whether you can afford a new car.

A 2009 Toyota Corolla, the top-selling car under the clunkers program, retails for $15,350 minimum. So even if you qualify for the maximum rebate, you'll still have to come up with more than $10,000. For most people, that means taking out a car loan, Visnic notes. If it's been awhile since you've owned a new car, he adds, you may be surprised at the toll a monthly car payment takes on your household budget.

A tax deduction, while much smaller, goes directly to your bottom line, Visnic says. You won't end up with a snazzy new car, but you won't suffer buyer's remorse, either.

•The amount of your tax deduction.

In 2005, Congress tightened the rules for deducting donated vehicles in response to concerns that many taxpayers were inflating the value of donated junkers. Under the law, most taxpayers can deduct only the amount the charity receives when it sells the donated vehicle. For example, if a charity sells your Cadillac Eldorado to a wholesaler for $200, that's the maximum you can deduct, even if you think your car is worth much more than that.

However, if you choose your charity carefully, you may be eligible for a larger deduction. If you give your car to an organization that refurbishes cars and uses them to conduct its activities, you can deduct the fair market value of the car. Likewise, you can deduct the fair market value if the charity gives or sells the vehicle at low cost to a needy individual.

Most charities that refurbish cars are local organizations, so you may need to do some research to find one in your area that will accept your donation. Make sure you get an acknowledgement from the charity for your tax records.

If you can't decide whether to donate your car or trade it in for a rebate, consider this: Charities are hurting. Many charities that rely on used car donations are human services charities, which help "the poorest of the poor," says Ken Berger, chief executive officer of Charity Navigator, a watchdog group. Contributions to human services charities fell 16% last year, according to the Center on Philanthropy at Indiana University.

At the same time, Berger says, the economic downturn has increased demand for the services these charities provide.

Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays. Click here for an index of Your Money columns. E-mail her at: sblock@usatoday.com. Follow on Twitter: www.twitter.com/sandyblock