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  "Junking a car" is the broad term that refers to various ways of disposing of an old car that no longer works. There are junkyards and car businesses that will buy old cars in order to salvage certain vehicle parts. Donating a vehicle to a reputable charity is another option. Whatever method of disposal is chosen, the individual must research and clearly understand how disposing of a vehicle impacts year-end taxes.
  
  

Tax Deduction

• The Internal Revenue Service (IRS) website explains that a tax deduction can be obtained by donating an item to an IRS-approved and registered charity. A tax deduction is usually obtained when a junk car is donated to a charity. The charity will provide the individual with a receipt for a deduction of a certain amount. The deduction reduces the individual's taxable income and lowers the final tax bill. In order to benefit from a tax deduction, the individual must complete and file Form 1040. The deduction must be provided in Schedule A of the form. The amount of the tax deduction for a junk car varies, although it is usually around $500.
  
  

Tax Exemption

• In certain cases, an individual can receive a tax exemption as the result of donating a junk car. A tax exemption provides complete relief from taxes on the donation. According to the IRS website, a tax exemption applies to both state and federal taxes. In order for a junk car donation to obtain a tax exemption, the charity must be appropriately registered with the IRS and meet all tax exemption requirements.
  
  

Including Selling Profit in Total Yearly Income

• Junk cars can be sold to a junkyard or individual instead of being donated to a charity. In certain cases, the junk car owner can make more money upfront by selling the car instead of receiving a certain tax deduction. If a junk car owner sells the vehicle, the profit that is made will be included in the total income earned for that tax year. As a result, the junk car profit is taxed by the government. The seller of the car must include the sale of the car in his total income when taxes are filled, in order to meet IRS rules.