Donating your old car to charity is a great way to provide a vehicle for a person in need or help fund your favorite charitable organization. As an added benefit, you can get a tax deduction from the donation. While the process of donating your vehicle is fairly straightforward, there are a few things you should know beforehand to protect yourself and ensure your donation will be put to good use.
Reasons to Donate Your Vehicle
Before we discuss how the vehicle donation process works, we’ll discuss the most common reasons why donating your vehicle to charities is a good idea.
You can help the charity whose work you support. This is a giveaway and probably the most common reason why people donate their cars to charities. Truth is, many charities can make good use of a donated car, so long as it is still usable. Daily means of transportation are a necessity for these institutions to fulfill their charitable missions.
You can get a considerable tax deduction. Although the rules have been a lot stricter these days, you can still get a deduction approaching fair market value if you donate your vehicle valued at over $500 to a non-profit organization.
You can avoid the hassle of selling the car yourself. Selling a car, especially used ones isn’t really a walk in the park. There are a lot of documents to handle. Plus, finding a potential buyer can take some time, not to mention the possibility of haggling over the price. If you donate your car, the vehicle donation processor will not only handle all these things for you, they’ll also ensure you get the best deal.
You don’t have to pay for vehicle pick-up. Another perk of donating your car is that the charities usually pick up the donated vehicles and tow them away for free. Though some may prefer driving the car themselves, this perk is advantageous for those who are intending to donate a vehicle that is no longer working.
You can get rid of your vehicle if it does not have a proper title. Some charities accept car donations that don’t have a title, some even offer to secure one for you. If this is not doable, they will probably sell your car for scrap or parts. This may reduce the value of your tax deduction but it’ll be a lot better than paying for the expense of replacing that lost title.
Step-by-step Vehicle Donation Process
Let’s now discuss the steps in donating a car to charity:
The First Step: Choose a Charity
The first step to donating your car is to choose a charity as the beneficiary. Pick a cause that’s dear to your heart, and research the various organizations that work toward that cause to see how they score in terms of using money and providing services. Unfortunately, some charities are disorganized, shady, or unscrupulous, and others use their funds inefficiently, so doing your due diligence is essential for maximizing the benefits of your donation.
Researching Charities
A good place to start your charity research is CharityWatch, an independent, nonprofit organization that evaluates charities based on a number of criteria, including the percentage of donations that are spent on the charitable purpose as compared to the percentage spent on administrative and fundraising costs. A charity with a program percentage of 60 percent is considered satisfactory, while one with a program percentage of 75 percent or higher is considered highly efficient.
Other good places to find information about your charity include the Better Business Bureau’s Wise Giving Alliance and GuideStar, which compiles financial data on various charities and presents it to the public in an impartial and easy-to-understand format to help guide donation decisions.
Factors to Consider when Choosing Your Charity
If you’re hoping for a tax deduction for your donation, you’ll need to choose a charity that is qualified to receive tax-deductible contributions. According to the IRS, this includes most religious organizations as well as organizations with a 501(c)(3) IRS status. Churches, mosques, temples, and synagogues aren’t required to apply to the IRS for tax-exempt status in order to be qualified organizations. To determine if your charity of choice is qualified, you can:
- Visit the IRS website and use the Exempt Organizations Select Check tool.
- Call the IRS Customer Account Services Division for Tax Exempt and Government Entities toll-free at 877-829-5500.
Once you donate your car to the charity, it’s theirs to do with as they please. However, depending on how much control you want over the allocation of the funds or how the car is used, you may want to know what the charity will do with the car. Some questions you might ask the charity include:
- How will the car be used, and where will it go?
- If the car is sold, will the money received be used locally?
- Which programs in the charity will benefit from the sale, and how?
- What percentage of the sale will go to the cause and what percentage will go toward administrative and fundraising costs?
Typically, the charity will make arrangements to pick up the car. If it’s drivable, taking it directly to the charity yourself will save them money and maximize the value of the donation.
The Second Step: Determine the Value of the Car for Tax Purposes
Donating your vehicle to a qualified charity earns you a tax deduction, which must be itemized on Schedule A of IRS Form 1040. The amount of the deduction will depend on what the charity does with the car, but in any case, this amount can’t exceed 50 percent of your Adjusted Gross Income (AGI.)
If the car is sold by the charity, your deduction will be limited to the gross proceeds from the sale. However, if any of these exceptions apply, you can deduct the fair market value (FMV) of the vehicle:
- The charity will keep and use the car.
- The charity will make improvements to the car before selling it.
- The car will be sold at a discounted price to a low-income person.
- The car is sold to someone other than a low-income person for less than $500. In this case, you can deduct the FMV of the vehicle up to $500.
If the car is valued over $500, you’ll need to complete Section A of IRS Form 8283 and attach it to your yearly taxes. If it’s valued over $5000, complete Section B of IRS Form 8283 and attach it to your taxes along with an independent appraisal of the vehicle.
The Third Step: Paperwork and Documentation
Once you’ve chosen your charity and made arrangements for the delivery or pickup of the car, you’ll need to cancel your car’s insurance policy then head to the DMV to:
- Transfer the title.
- Cancel your registration.
- Complete a Notice of Transfer or Release of Liability form, which will vary from state to state.
The paperwork you fill out for the charity will vary, but the most important thing you’ll need to do is to fill out the “assignment of ownership” space on the paperwork to formally sign over the car to the charity. If you neglect to do this, you will be held responsible for any parking tickets the car receives, and you’ll be liable if the car is used in the commission of a crime. If the charity asks you to leave this space blank, find another beneficiary.
Within 30 days, you should receive a written acknowledgment from the charity that contains:
- Your name and social security number or tax ID number.
- The Vehicle Identification Number (VIN).
- The date of the donation.
- A statement that certifies either a) no goods or services were provided in exchange for the vehicle; b) the description and estimate of the value of goods or services provided in exchange for the vehicle; or c) a statement that the goods or services were intangible in nature.
Because non-cash donations are a common trigger of IRS audits, you’ll want to keep this written acknowledgment in a safe place and maintain impeccable records of all aspects of your donation.