Donating a Vehicle to Charity? What to know…
Donating a vehicle to charity is a super generous and impactful gift. Each charity has different needs and what they can accept varies. Typically most vehicle types are accepted and in pretty much any condition. Unfortunately, most of these charities do not have the capacity to process these donations and rely on other organizations to accepts these gifts.
You should be cautious about donating directly to individuals to avoid scams and for your own safety. Additionally, you will not be able to deduct the vehicle on your taxes. Finding a qualified organization who’s mission you care about is important. We will help you navigate the process, what to expect and how to maximize your generous donation.
There are a couple of good options to consider in giving to a charity. Either, donate your car directly to a qualified charity or sell your car and contribute the cash to directly to that good cause. If you don’t mind the hassle and would like to make the contribution by check, then simply sell your car. There are many organizations like Cash for Clunkers that can pay you cash on the spot + a free tow and pick up all in 48-72 hours!
But often donating a car directly can make the most impact. Supporting a worthy charity directly with your vehicle can help even more people.
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Why Donate A Car?
When donating a car the Make, model, and condition typically doesn’t matter
Depending on what the charity requires and the type of vehicle you have, the charity might use the car themselves, sell it to another individual at a reduced price, auction it off for money, or sell to a salvage yard. The best part is most charities will take any car – even if it isn’t in a drivable condition. Dealers or private buyers might not take just about any vehicle, especially if it isn’t running.
When you donate a car…They take it off your hands
The vehicle will often be towed away (if it is too old to run on its own), totally free of cost. The process is simple – you have to call the charity your choice, work out the basics, and then someone will come to pick up the car at your house. So if you have a junk car or older vehicle you don’t want to hassle with selling directly, donating it can be a great option!
You can receive tax benefits when donating a car
You get tax benefits as you are making a donation to a charity – it is for a good cause, so you are likely to be reward. All you have to do is secure documentation from the charity to prove you transferred the title to them and that they have accepted the donation.
Last but not the least…the “feel good” factor on donating a car to worthy charity
Don’t take this lightly. You feel good about donating to a charity as it is a noble endeavor. But regardless of whether you qualify for a tax deduction or not, you can rest assured, the charities will be grateful for it. It is a great way to clear out some space and help people at the same time.
Where do I Start to Donate My Car?
Tips to keep in mind
The easiest way to donate a vehicle is to just get in touch with a credible charity, arrange a convenient time so they can come to your home and pick it up. It is a pretty straightforward process, and generally safe. But it is imperative to exercise caution so you aren’t held liable for anything that happens with your car after it is donated.
- It is advisable to stay away from organizations that make exceptional promises such as telling you about exorbitant tax deductions.
- As mentioned, get a receipt after the donation and hang on to it.
- Once you are done driving the vehicle, remove the license plates from it.
- File a transfer form to sign over your title with your state’s transportation or motor vehicle agency.
- Make sure you Remove all personal belongings from the vehicle! Items frequently left in vehicles include: garage dooropener, EZ pass, CDs, and DVDs
Carefully review the steps mentioned, consult with a tax advisor, and then make an informed decision. As a final reference we have included this handy checklist to reference before donating a car:
Remember that the tax deductions are controlled by the IRS, so you have to meet certain criteria in order to avail the deduction. But even if the process seems a bit tedious, it is worth it in the end, as you get to help people, and get rid of a junker that was just cluttering up space in your garage.
First, The Charity Must Qualify!
All charities don’t qualify when it comes to claiming tax deductions. A qualified charity should be recognized by the IRS as a 501(c)(3) organization. Remember that religious organizations are qualified organizations, despite not having to file for 501(c)(3) status. You can visit the IRS exempt organizations site to find out if a particular charity is qualified, or call the toll-free IRS number for more details.
Returns Have to be Itemized
If you wish to reduce your federal income taxes by claiming a vehicle donation, the deductions have to be itemized. For instance, if you are in the 28% tax bracket and the allowable deduction for the vehicle donation is $1,000, it saves you around $280 in taxes.The individual and married tax deduction has been increased to $12,000 and $24,000 respectively, so it doesn’t make much sense to itemize your deduction unless you have many other deductions.
Unless the charity uses it directly, the value of tax rebate is usually capped at $500.
If the vehicle donation is your only deduction, it is likely that taking a standard deduction would save you thousands more dollars in taxes. The best way that donating a car gives you any tax benefit is if you have multiple deductions, and the total (including the car), is more than the standard deduction. Moreover, you can always donate as much as you want to charities, but the IRS limits how much you can claim on your tax return, so work out the figures beforehand.
Conditions for Claiming Tax Deductions
Fair market value is defined by the IRS as “the price a willing buyer would pay and a willing seller would accept for the vehicle, when neither party is compelled to buy or sell and both parties have reasonable knowledge of the relevant facts”. It means the buyer or seller can’t be an auto dealer – they have to be private parties. Under the current IRS rules, a vehicle’s fair market value can be deducted as per the following:
- When a charity auctions your vehicle for $500 or less, you can claim either the fair market value or $500, whichever is less.
- The value can be deducted if the charity wants to use it for work purposes, which means “significant intervening use of the vehicle.”
- Deduction of fair market value is applicable if the charity makes a “material improvement” to the vehicle (it doesn’t mean just routine maintenance).
- The fair market value deduction can be claimed if the charity sells the vehicle to another individual at a price significantly below fair market value.
Paperwork is Vital
Once you hand off the car to the charity, get a written receipt immediately. Depending on what the charity does with the vehicle, you get a written acknowledgement or Form 1098-C (Contributions of Motor Vehicles, Boats, and Airplanes) at some point. Don’t misplace this document, as the information could be required while filing taxes and you might have to send the document too, if the tax deduction is more than $500. If you are donating a car worth more than $5000 to charity, and they don’t plan to sell it for cash, an official written appraisal at least 60 days before you donate the car is a must.
Generally most charities sell off the cars that are donated to them, as they are always in need of money. In those situations, you can deduct the car’s final selling price, which the charity provides with a written acknowledgement or Form 1098-C. The documents you have to file with your tax return are listed below:
- $500 or less – Nothing in particular, but you should keep the records handy in case you are audited.
- $501 to $5,000 – File Form 1098-C or the written acknowledgement, along with Section A of Form 8283.
- More than $5,000 – File Form 1098-C or the written acknowledgement, along with Section B of Form 8283 and the written appraisal of the vehicle if the charity isn’t selling it.
Regardless if you will qualify for a tax deduction from a car donation or not, the charity and beneficiaries will be very grateful. Even an older car may qualify as a donation since charities can only sell it to a scrap yard. Consider donating your car — it’s a great way to clear your yard while helping people out at the same time. It’s a win-win scenario — just make sure to cross all the t’s and dot all the i’s if you do plan on taking a deduction.