Donating your car to charity instead of selling it or trading it in can provide your favorite nonprofit organization with much needed funds. Donations by individuals account for 72 percent of all charitable funding, according to the National Philanthropic Trust, and about 95 percent of American households donate money, goods, and services to charity each year.
How Charities Use Car Donations
Depending on the charity, its needs, and whom it serves, your donated vehicle will be put to use in one of three ways:
- The charity will sell it and use the cash to further their mission.
- The charity will give away or sell the car at a discounted price to a person in need.
- The charity will keep and use the vehicle in its daily operations.
The type of charity you choose and how they use the car will affect whether you get a tax deduction for your donation and if so, the amount of the deduction.
A Word of Caution About Using Intermediary Organizations
Car donations are big business in the U.S., to the tune of over a quarter of a million vehicles donated to charity every year. As a result, for-profit intermediary organizations are making a lot of money acting as the middleman. While not all of these companies are disreputable, it’s important to carefully examine any organization that sells cars on behalf of charities. Even reputable middlemen may keep up to 50 percent of the proceeds from the sale of the car, and some may keep as much as 90 percent.
When charities sell a car themselves without using a middleman, they end up spending a considerable amount of time and money in the process, but typically come away with 75 percent or more of the proceeds from the sale. Therefore, when choosing a middleman, or when choosing a charity that uses one, do your due diligence and make sure the charity will benefit generously from the sale, ideally getting at least 75 percent of the proceeds.
Narrowing Down the Best Charities to Donate Your Car To
Whether you donate your vehicle directly to a charity or use an intermediary organization, you’ll want to be sure that the charity is reputable and uses its funding wisely. Some charities may have good intentions but manage finances poorly, resulting in most of their funding going toward administrative and fundraising costs rather than toward funding the programs that align with their mission. Other charities are outright fraudulent, using the majority of donations to fund high officers’ salaries.
If you don’t already have a favorite charity, choose a cause that you feel passionate about and conduct some online research to find charities that support the cause. Once you’ve got a list of potential organizations, it’s time to do some research to make sure the charity is reputable and qualified to receive tax-exempt donations and to find out how your donation will likely be used.
Is the Charity Qualified?
If you’re planning on taking a tax deduction for your car donation, you’ll need to make sure the charity is registered with the IRS as a 501(c)(3) nonprofit entity, which qualifies it to accept tax-deductible contributions. To find out whether a charity is qualified, you can contact the IRS in one of two ways.
- Visit the IRS website “Exempt Organizations Select Check Tool” page and search for the charity in the database.
- Call the IRS Customer Account Services Division for Tax Exempt & Government Entities toll-free at 877-829-5500M.
Churches, mosques, synagogues, and temples aren’t required to file with the IRS, but they are all qualified to accept tax-deductible donations.
Is the Charity Reputable?
To ensure that the highest level of good comes from your donation, you’ll want to find a reputable charity that spends a high percentage of its income on programming as opposed to administration and fundraising. Charities that spend more than 60 percent on programs are considered satisfactory, while those that spend 75 percent or more on programming are considered the most efficient. Two good places to start your research are GuideStar and Charity Navigator.
- GuideStar doesn’t rate charities, but rather compiles the information found on the charity’s IRS Form 990 into a format that makes it easy to find the information you’re looking for. You can read the charity’s mission statement and expert assessments of its impact as well as view its financial information, including how much money it brings in, how much it spends on programs, and the salaries paid to its officers. You’ll need to create an account to view some of this information, including the actual Form 990 and other official documents.
- Charity Navigator analyzes charities and assigns them a one- to four-star rating based on their financial health, accountability, and transparency. It also breaks down the allocation of funds that go toward programming, administrative functions, and fundraising as well as see how they score on various other metrics.
How Will the Charity Use the Vehicle?
Once you’ve done your research, it’s time to contact the charities on your list and ask them some questions to determine whether they’re the one you want to donate your car to. Some of the questions you might ask include:
- Does the charity accept vehicle donations? If so, do they use an intermediary organization? And if so, what percentage of the proceeds does the charity actually get?
- How will the charity use the car? If it’s sold, what percentage of the proceeds will go toward programming? What programs will benefit? Can you choose which programs get the funds?
It’s important to note that how the charity uses the car will affect how much you can deduct from your taxes.
- If the charity keeps the car to use in their operations, makes improvements and then sells it, or gives it or sells it at a discount to someone in need, you can deduct the fair market value of the car.
- If the car is sold for less than $500 to someone other than a person in need, you can deduct the fair market value of the vehicle up to $500.
Keeping impeccable records of the donation is essential for protecting yourself from liability and fraud and for ensuring a good outcome in the event you’re audited by the IRS. Within 30 days of the donation, you’ll get a written acknowledgement from the charity with important information that you’ll need at tax time. Make sure to keep this and copies of all other documents related to the donation in a safe place.