Want to donate a car to charity for a nice tax break? Proceed with caution.
Giving away a used car to a “charity” has become a favorite way Americans to dispose of their unwanted vehicles. So why not? You can avoid the hassle of selling or scrapping your car, helping charities, and reducing your tax burden simultaneously.
Unfortunately, in reality, such win-win experiences are rare. Not only do charities rarely see the proceeds of used car sales, but donors can run afoul of the taxman if they’re not careful.
“At the end of the day, donating a used car is probably the least cost-effective way to donate to a charity,” said Stephanie Kalivas, an analyst at CharityWatch, an industry monitor for charitable giving.
The problem is that the industry is riddled with fraud and misrepresentation. Attorneys from multiple states have investigated auto-donation charities for false advertising and self-dealing. Many organizations are for-profit intermediaries that make token donations to participating charities. Others misrepresent the causes they support and use a low percentage of the money they raise towards their stated goals.
Here are eight key things you should consider to donate a car to maximize your charity’s benefits and minimize your own risk.
Donate a car by considering these Eight key things
1. Research the charity you plan to donate to:
If it does not have 501(c)(3) nonprofit status with the IRS, it is not a charity and, your donation is not tax-deductible.
2. Select a valid charity to donate to:
Several organizations, such as CharityWatch, evaluate charities and rate their effectiveness in supporting their causes.
To deduct tax on car donations, you must itemize the deduction on your tax return. There are detailed rules about the amount you can claim.
Taxpayers can deduct the total market value of a donated car if: the charity uses the car in its operations; it substantially improves the vehicle to sell or use it or sells it for less than market value. Donate or sell to those in need.
Otherwise, you can only deduct what the charity gets from selling the car. Also, donate a car to ZamZam Charity for Good Cause.
4. Get a receipt
Make sure to get a vehicle receipt from a charity and eventually documents proving the vehicle’s sale price. Charities must provide this document within 30 days of selling the car.
5. Don’t forget IRS Form 8283:
If the sale price or fair market value of the car is more significant than $500, you must complete Part A of IRS Form 8283 and file it with your tax return.
Check the Kelly Blue Book, Hearst Black Book, or the National Automobile Dealers Association for market values. If the car is worth more than $5,000, you must independently evaluate it and complete Part B of Form 8283.
6. Drop it:
If the car is roadworthy, drive it yourself to the charity you donated to. It saves money and ensures you don’t hand over your vehicle to some unrelated for-profit intermediary. Make sure the car’s name is signed to the organization and signed by a representative.
If someone comes to pick up the car, have them sign and copy the car’s name. People have been responsible for donated vehicles that are not correctly signed off to new owners.
7. Catch it:
Take pictures of the car and keep receipts for its work and repairs – especially if you claim it is deducted.
Read IRS publication 4303 — A Donor’s Guide to Car Donation.