Charitable Automobile Donations
If you have a car to unload, could use a tax deduction and enjoy making a difference in the world, you might want to consider donating your automobile to charity. Charitable automobile donations are becoming more popular every year. Many charities who accept donated cars actually use the vehicle for the benefit of their organization. Others simply sell your donated car to raise cash. Some use an intermediary to handle the transaction, and others receive the car and paperwork directly from you. When you donate your car to an organization, you will receive a tax deduction determined by a number of factors, including whether your car is worth more than $500, what the charity does with your car and to whom it is sold. You may also enjoy knowing that your donation is helping the charity of your choice achieve its goals, or that someone who couldn’t otherwise afford to buy a car is getting the chance to own one because of you.
There are a number of charities and intermediary organizations who accept charitable automobile donations. It is important to do some research before making any commitments, however, because this kind of tax deduction is diligently regulated and monitored by the IRS in order to prevent fraud. Charities who accept donated automobiles directly generally end up with a larger share of the car’s value. Intermediaries often receive 50 to 90 percent of the car’s eventual sale price. The best idea is to check with the charity of your choice to see if they accept vehicle donations and work with them directly. You’ll also want to make sure that the charity is a 501(c)(3) organization which means the IRS has approved it as a legal charitable organization. Intermediaries often advertise that they manage all the paperwork and make your transaction easy, but if the paperwork isn’t handled properly, the IRS will hold you responsible for any repercussions.
The first step to take after deciding you want to donate your car is to research charities and find the right one for you. Check with the IRS to see that they are a 501(c)(3) and check with the Better Business Bureau for a history of their automobile donation activity. Call the charity to find out if they have additional rules or requirements. Then prepare your car for donation. Many charities will accept your car in any condition, but you might want to make sure you have removed all your personal items, and you may want or need to clean it up. If you end up using an intermediary company to conduct the transaction, find out exactly how much your donation will ultimately be worth. Some take a percentage of the final sale price while others pay a pre-set amount which can be as low as $45. The IRS does not allow tax deductions on certain donations, such as those that are worth a predetermined flat fee regardless of the car’s value, in which case it might not be worth it to go this route.
It is important to either handle the transfer of title yourself or obtain copies of the proper documentation proving you are no longer the owner of the car. Parking tickets and other violations could be charged to you if this isn’t done correctly. Make sure you indicate the new owner or charity on the ownership papers, and that the transfer is reported to the department of motor vehicles in your state.
You will also need to determine how to report the value of your car for tax-deduction purposes. You can use the Kelley Blue Book’s listed fair market value only if the car is worth less than $500, the charity uses your car itself, or if the charity sells the car at a discount to a person of low income. See IRS Publications 526 and 561 for specific information on determining your car’s value. If your vehicle is improperly valued or there are discrepancies in your paperwork, the IRS will notice, and you could be fined or flagged for audit. You will know the exact amount you can claim as a tax deduction when your car has been sold by the charity and they have issued you a receipt. If they are going to keep and use the car, they will issue you a receipt upon possession of the vehicle. If your car is worth more than $500, you will need to file IRS Form 8283 with your taxes. If it is worth more than $5,000, you will also need an independent written appraisal from a professional appraiser. Take care to retain copies of the transfer papers and the receipt issued by the charity. If your car is valued over $5,000, you will also need to save copies of IRS Form 8283 and the professional appraisal. Obviously, if you don’t itemize deductions on your tax return, you cannot claim a deduction for your charitable automobile donation.
Part of the reason you’re donating your vehicle is to help a charity you find worthy. If you want to make it as profitable for them as possible, go directly to the 501(c)(3) designated organization of your choice and, if you can, drive your car to the charity yourself. Most charitable organizations have to pay someone to pick up your car, an expense that cuts into your donation. Fortunately, the process of donating your vehicle is relatively easy when taken a step at a time. Just remember to save copies of all the paperwork and contact the IRS if you have questions. Charitable automobile donations can be rewarding for you personally, as well as for others. Whether you donate your car to a military, medical, neighborhood, national, public, private or other worthy charity, your donation can make a difference where you think a difference is needed.