An average individual will typically make only a handful of major investments during their lifetime. Without question, buying a home is the largest financial investment many will make. For some, purchasing a new car might be the biggest investment of their life. For those who hang on to their cars for several years, it can be tough to decide what to do with that vehicle when it has reached the end of its usable life.
In many cases it is a good idea to simply trade that vehicle in to a dealer. The value of that used vehicle can be applied to the purchase of a new car in the form of a down payment. What if that old car isn’t worth much? Or worse, what if a dealer won’t even make an offer to buy it from you? In either case, your best course of action is to consider donating that car to a charity.
A number of charitable organizations across the US that accept cars as a form of donation. Some charities will take car donations and repurpose those vehicles, depending on the level of wear and tear, as transportation used by the charity or its partner organizations. Other charities take car donations and offer those vehicles to trade schools for mechanics. Although the vehicle may no longer be usable on the road, future mechanics can practice their trade on a physical piece of equipment.
When you donate a car you are entitled to a tax deduction for your charitable contribution. However, car donation scams are increasingly prevalent. If you get caught up in a car donation scam you are facing weeks, if not months, worth of hassle to clear up the issue. In the best-case scenario, you’ll have to fill out paperwork with the government (federal and state) to resolve any financial questions. The worst-case scenario involves the Internal Revenue Service (IRS) digging into your tax returns to clear up the issue.
All of these headaches can be avoided if you do a little research. If you know what kind of car donation scams are common, you can protect yourself against any of the headaches mentioned above.
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Work with Legitimate Charities
According to a study published in USA Today, the number of public charities in the US grew by 50% between 2000 and 2013. Today, there are 965,000 charities in the US, compared to 643,000 just thirteen years ago. It is difficult for federal and local government agencies to verify the legitimacy of all these organizations.
The best way to avoid getting caught up in a scam when donating a car is to visit the IRS website. Here you can access an online version of IRS Publication 78. This list contains all charities with 501 (c) (3) status that have registered with the IRS. If you have a charity in mind but do not see it on that list, you can also check with your state attorney general’s office. In many cases, these offices maintain an online list of legitimate charities.
In the event that your quest for a charity brings you across a middleman, you have almost certainly stumbled into a car donation scam. While it is true that charities work with for-profit organizations at times, a middleman with no direct affiliation to a charity is a good warning sign. When you make a donation directly to a middleman, much of your donation will end up benefiting that individual and not your chosen charity. Most charities receive as little as 10% of the donation’s value from a middleman.
Work Directly with the Charity
Middlemen are one warning sign you should be looking for, but not the only sign. As previously mentioned, charities will work with for-profit organizations when collecting donations. It is a good idea to avoid these scenarios. Work directly with the charity you wish to make a donation to in order to avoid scams.
When it comes to cars, it is a good idea to deliver the vehicle directly to the charity yourself. Before making your donation, visit your local Department of Motor Vehicles and transfer ownership of the vehicle to the charity. Upon delivery of the vehicle, you can confirm the direct transfer of the vehicle and its title to the charity.
If you feel the least bit uncomfortable with a charity, take the time to ask questions about its car donation program. Before simply handing over the keys and claiming a tax deduction, ask the charity how it will use your car once it is donated. Ask them for brochures about the program. Ask for a link to a website with information. Any question that comes to mind is a good question to ask. The more you know, the better prepared you are to avoid a car donation scam.