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How To Donate A Used Car Without Getting Scammed

Reasons To Donate Cars

Donating your used car to charity is a valuable gift that can help fund nonprofit programs or provide transportation for low-income people in need. The process of donating a vehicle is fairly simple, but there are a number of factors to consider before proceeding to protect yourself from liability and fraud as well as ensure the beneficiary gets the most value out of the donation and you get the highest possible tax deduction.

Direct Donation vs. Intermediary Organization

Donating cars to charity is big business, with over 250,000 cars donated every year, resulting in hundreds of millions of dollars in tax deductions. In response to the large number of vehicle donations, intermediary organizations have set up shop all over the country to act as a middleman between those who donate and the charitable recipients. Because the IRS doesn’t govern the percentage of the proceeds that goes to charity, charity must negotiate with the intermediary organization for the amount they’ll receive. While many of these organizations are reputable, they nevertheless typically keep up to 50 percent of the profits. Disreputable middlemen may keep up to 90 percent.

Whenever possible, donate your car directly to the charity to maximize benefits. If you can drive the car to the donation location, you’ll save the charity money on retrieval costs. Otherwise, the charity will typically arrange for the pickup of the vehicle.

Choosing a Charity

If you’re hoping to take a tax deduction for the donation of your vehicle, the recipient must be qualified by the IRS to accept tax-deductible contributions. Nonprofit organizations with 501(c)(3) status are qualified, and many educational and religious organizations meet the qualification criteria as well. Synagogues, churches, mosques, and temples aren’t required to apply to the IRS for exempt status, but they all qualify.

You can verify that a charity or organization is qualified to receive tax-deductible contributions by contacting the IRS in one of two ways:

It’s an unfortunate truth that some charities are less scrupulous or use their funds less efficiently than others. Before donating your vehicle, research the charity to determine how they score. Three excellent resources for researching charities are:

  • CharityWatch.org, an independent organization that evaluates charities based on the percentage of donations that are used to fund programs compared to the percentage used for administrative and fundraising costs.
  • Better Business Bureau Wise Giving Alliance provides information about charities including their fundraising methods, financial information, and the percentages of donations that go to programs, fundraising, and administrative costs.
  • GuideStar collects and disseminates information about every charity registered with the IRS, presented in an easy-to-understand format.

Organizations that spend 60 percent of donations on programs are considered “satisfactory,” while the most efficient charities spend 75 percent or more of their funds on programs.

When you donate your vehicle, the charity will typically use it one of three ways:

  • They may keep the car and use it in daily operations.
  • They may give the car or sell it at a discounted price to a person in need.
  • They may sell the car and use the proceeds to help offset administrative and fundraising costs or to fund programs.

Depending on how much control you want over the use of the car or the proceeds, you may want to ask the charity questions like:

  • How will the car be used?
  • If it’s sold, will the proceeds be used locally?
  • What programs will benefit from the sale of the car?
  • What percentage of the proceeds will go to program funding and what percentage will go toward administrative or fundraising costs?

The Nuts & Bolts of Car Donation

Once you’ve chosen your charity and you’re ready to donate, you’ll need to do several things. First:

  • Call your insurance carrier and cancel your policy.
  • Visit your local DMV office to transfer the title, cancel the registration, and fill out a Notice of Transfer or Release of Liability form, which will vary from state to state.

You will also need to fill out some paperwork for the charity. These forms will vary among different organizations, but every organization should have you fill out an “assignment of ownership” section on the paperwork. This will ensure that you’re not held responsible for parking tickets the car receives after you’ve donated it, and it will protect you from liability if the car is used to commit a crime. If the charity asks you to leave this section blank, find another charity to donate the car to.

Within 30 days of the donation, you should receive a written acknowledgement from the charity with the following information:

  • Your name and tax ID or social security number.
  • The VIN of the vehicle.
  • The date of the donation.
  • Details about how the car will be used.

The written acknowledgement will include statement certifying that:

  • No goods or services were received by you in exchange for the vehicle, – or –
  • Goods or services were provided in exchange for the vehicle. The statement will provide a description and estimated value of the goods or services.
  • The goods and services received by you in exchange for the vehicle were intangible or religious in nature.

Keep the written acknowledgement in a safe place, because you’ll need it in the event you’re audited by the IRS.

Deducting the Donation on Your Taxes

The best way to maximize your tax deduction is to give the car to a charity that will either use it or give it away or sell it at a discount to a person in need. In any case, amount you deduct for the donation cannot exceed 50 percent of your annual gross income (AGI.) The actual amount you deduct depends on what is done with the car, which will be detailed on the written acknowledgement from the charity.

  • If the car is sold and the proceeds go to the charity, you can only deduct the amount of the gross proceeds from the sale.
  • If the charity will keep and use the car, make improvements and then sell it, or sell it “as is” at a discount to a person in need, you can deduct the fair market value of the car.
  • If the car is sold for any amount under $500, you can deduct the fair market value up to $500.

Itemize your deduction on Schedule A of IRS Form 1040, and:

  • If the value of the car is over $250, you’ll simply need to keep the written acknowledgement from the charity in case of an audit.
  • If the value is over $500, fill out Section A of IRS Form 8283 and attach it to your taxes.
  • If the value is over $5000, fill out Section B of IRS Form 8283 and attach it to your taxes along with an independent appraisal.

Non-cash donations are one of the most common triggers for audit by the IRS, and keeping impeccable records of your donation is essential for protecting yourself in the event you’re audited.

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