When you’re in the market for a new car, you may be wondering if it’s worth the time and money to try to sell your old beater. If the answer is no, consider donating your junk car to charity. You’ll get a tax deduction and the charity can use the car, sell it and use the proceeds, or give it or sell it at a discount to a person in need. Either way, you’ll get rid of the car with minimal work, and your favorite charity will benefit.
Donating your junk car to charity is fairly simple. Simply choose your charity, contact them for information about how to donate, take care of the appropriate paperwork, and deliver the car or, if it’s not drivable, have the charity arrange to pick it up.
One word of caution: Using a for-profit intermediary organization to donate your vehicle considerably reduces the amount of the benefit to the charity. Even the most reputable middlemen may keep up to 50 percent of the proceeds, while a disreputable firm may keep as much as 90 percent. Whenever possible, donate your vehicle directly to the charity.
Choosing a Charity
If you don’t have a favorite charity, choose a cause that’s dear to your heart and find an organization that supports it. But beware: not all charities are scrupulous, and not all reputable charities use their funds efficiently. To find a reputable charity that uses its funding efficiently, you’ll need to do a little research.
CharityWatch.org is a nonprofit watchdog organization that evaluates charities based on factors like the percentage of donations used to fund programs versus the percentage used for administrative and fundraising costs. Charities that use 60 percent of their donations to fund programs are considered “satisfactory,” while those that use 75 percent or more for program funding are considered the most efficient.
The Better Business Bureau Wise Giving Alliance provides information about how charities raise funds and use their money and breaks out the percentages of donations that go toward programs, fundraising, and operations.
GuideStar is an organization that compiles and presents in a straightforward manner the financial information about all charities registered as nonprofits with the IRS. While GuideStar doesn’t grade charities, the information they provide can help you make an informed decision.
If it’s important to you to know how the funds will be used, or if you want to have a say in where the car or the proceeds of its sale goes, you’ll want to ask questions like:
- How will the car be used?
- If it’s sold, will the proceeds be used locally?
- What programs will benefit from the car or the sale of the car?
- What percentage of the proceeds from the sale of the car will go toward programs, and what percentage will go toward administrative and fundraising costs?
If you’re planning on taking a tax deduction for your donation, you’ll need to make sure the charity you choose is registered as a nonprofit with the IRS and qualified to accept tax deductible donations. To find out if your charity is eligible, you can contact the IRS in one of two ways:
- Call the IRS Customer Account Services Division for Tax Exempt and Government Entities toll-free at 877-829-5500.
- Visit the IRS website and use the Exempt Organization Select Check Tool to search for your charity.
Churches, synagogues, mosques, and temples aren’t required to register with the IRS, but they are all eligible to accept tax-deductible contributions.
Completing the Documentation
You’ve chosen your charity and contacted them with your intentions. Before the donation is complete, there are a few things you’ll need to do.
First, find out the Fair Market Value of the vehicle and keep this information for your records. Next, cancel your auto insurance and visit the DMV to complete a title transfer, cancel the registration, and fill out a Notice of Transfer or Release of Liability, depending on the laws in your state.
The paperwork you fill out for the charity will vary, but at some point, you’ll be asked to fill out and sign an “assignment of ownership” document. This is essential, because if you don’t sign it, you’ll be liable for any crimes committed with the vehicle, and you’ll be responsible for any parking tickets or other nonmoving violations the car gets. If the charity asks you to leave this information blank, cease the transaction and find another charity.
Within 30 days of the donation, you will receive a written acknowledgement from the charity that includes your name, social security number, the vehicle’s VIN, the date of donation, and a description of how the car will be used. The acknowledgement will also contain a statement that certifies one of three scenarios:
- The vehicle was not donated in exchange for goods or services.
- The vehicle was exchanged for goods and services. A description of the goods or services and their estimated value will be included in the statement.
- The vehicle was exchanged for intangible benefits, such as those that are religious in nature.
Be sure to keep this written acknowledgement in a safe place. You’ll need it in the event of an IRS audit.
Taking a Tax Deduction
The amount of your tax deduction will depend on how the charity uses the car. You can maximize your deduction by donating your vehicle to a charity that will either use it in their daily operations or give it away or sell it at a discounted price to a person in need. In any case, the amount of the deduction can’t be more than 50 percent of your Adjusted Gross Income (AGI.)
If the car is sold and the proceeds go to the charity, your deduction amount will be limited to the gross proceeds of the sale.
If the charity will keep and use the car, make improvements and then give or sell it to a person in need, or give or sell it “as-is” to a person in need, you can deduct the full fair market value of the car. If the car is sold for less than $500, you can deduct the fair market value up to $500.
Your donation must be itemized on Schedule A of IRS Form 1040. If the value of the vehicle is over $250, you don’t need to fill out any other tax documents, but do keep the written acknowledgement in a safe place in case you’re audited. If the value of the car is over $500, fill out Section A of Form 8283 and attach it to your taxes. If the vehicle’s value is over $5,000, fill out Section B of IRS Form 8283 and attach it to your taxes along with an independent appraisal of the vehicle.