Donating a car to charity is a great way to help those in need while escaping the hassle of selling it and receiving a tax deduction for yourself in t he process. While it is a very common and accepted practice, there are some subtle rules and pitfalls, so you’ll want to remember these tips before heading in to turn over your title.
Choose A Charity
You’ll want to carefully choose the charity that you plan to donate your car to. Find out ahead of time how the charity or organization you are going to donate to plans to use the car. Make sure you do extensive research on the charity itself, and find out what part of your donation will actually go to the charity and what part, if any, will go to a third party for generating the lead or transporting the vehicle. If the charity uses a third-party for leads, towing or pick-up then they may end up with a small percentage of the actual value of your car.
Many of these third party intermediaries will keep up to 50% of the value of your donation for themselves. Find out if you are able to drive the car to the organization itself and drop it off, as you will make sure that they are able to receive the full value or your donation. How the charity you give to plans to use the car will have a lot to do with determining it’s value. If the charity plans to use the car for transportation or another vehicular use, or give it to someone in need to do the same, then you should be able to deduct the entire value or the car. However, if the car is going to be sold for the proceeds, then you will only be able to deduct the amount of the sale of the car, regardless of it’s true value.
Determining Your Cars Value
If your car is valued at or less than $500 or the charity plans to utilize and keep your car, not sell it, you may simply use the Fair Market Value (FMV) from a source like The Kelly Blue Book to determine it’s value and report that to the IRS yourself. You’ll want to keep in mind though, the FMV may not be the exact number you see if your car is in disrepair, has damage or wear that would make it actually sell below the FMV. If your donation is to be sold at auction, or is valued over $500, then the actual deductible value will be determined at sale and the charity will send you a receipt displaying it’s actual selling price. You’ll need to hold onto that receipt as evidence of the value for IRS. Additionally, if it’s value is over $5,000, you’ll need to have it appraised.
Transferring The Title
You’ll want to make sure that you have the title for the car you are donating and if not, apply for a duplicate title before starting the process of donating it to charity. In most states, you can transfer the car title to the name of the charity, and in no circumstances should you ever leave the new owner section blank. If your charity asks you to do this, find a new one. You could rack up parking tickets and other violations while the car is still in your name. Make sure you properly re-title the vehicle and promptly report the change to your state Department of Motor Vehicles or licensing department.
Protecting Your Donation With Paperwork
To protect yourself, be sure to receive a reciept for your donation from the charity you give your car to. Non-monetary donations are common flags to an IRS audit, and so you’ll want to make sure you have proof before claiming it on your taxes. You may even want to take pictures of the car and retain any upgrade or maintenance records to help verify the value of the car. It is the donors responsibility and not that of the charity to ensure that the vehicle is properly valued and it will be the donors duty should the IRS find the value to be inaccurate. If your car is worth over $500, you will need to fill out IRS Form 8283 Section A and included it with your tax return, along with the receipt from the charity that sold it showing the value for which it was sold. In the event that your care is worth over $5,000, you will need to fill IRS Form 8283 Section B and you will also need an outside appraisal along with the receipt from the charities sale. It would be a prudent move to review the IRS A Donor’s Guide To Car Donation before donating your car to be aware of the latest guidelines and regulations.