It is hard to let go of a beloved old car that is beyond even a trade-in. Sending it right to the junk yard can be heart wrenching. Making a car donation to a worthy charity seems like a good move, but, unfortunately, car donation is an area of charity that is rife with fraud and misleading information.
The ads that you see everywhere that offer to help you make a car donation to charity are almost always rip-offs. In most cases, these are middle-men who give only a fraction of the car donation worth to the charity. Car donation middle-men are not required by the IRS to contribute a certain amount of the auto's proceeds to a charity. The amount the charity receives from a car donation is negotiated by the charity and the middle-man.
No matter what celebrity promotes these car donation programs, do not use them for your car donation unless you can verify that the car donation agency gives a significant percentage of the proceeds from your car donation to the charity. If you are going to do that kind of research, you might just as well use that time to find a charity that can take your car donation directly. Ask your favorite charities first...they may have a car donation program.
Instead of calling the first telephone number you see on a billboard for car donation, follow these steps to make a car donation to charity.
Rules of the Road for Your Car Donation to Charity
- Find a charity in your local area that will accept your car donation directly. This will require some research, but you will feel ever so much better when you find a worthy group that will benefit directly from your car donation.
Make sure that the charity you choose for your car donation is a 501(c)(3) organization. These are the only nonprofit groups that can provide a tax deduction for your donation. Check the organization's website for proof of its charitable status, look it up on the Better Business Bureau's nonprofit list, or check it out on Charity Navigator, an organization that rates nonprofits across the country.
- If possible, deliver your car donation to the charity yourself. A charity will have to pay someone to pick it up. Save them that expense by driving the car directly to the charity. Make arrangements with the charity first, of course, so that the proper paperwork for your car donation can be prepared.
- Protect yourself from future liabilities that could result from a car donation. There are some sad cases of people making a car donation and then being held liable when that car was later in an accident. Make sure that the title is transferred properly to the charity. Check with your state's Department of Motor Vehicles about how to do this properly. Never leave a blank space on the title for someone else to fill in. Do not leave the ownership space on the charity car donation papers blank. If the charity asks you to do that, find another organization.
- Understand the IRS rules for your car donation. First, a tax deduction is only available for your car donation if you itemize your deductions. An estimate of the value of your vehicle will not pass muster at tax time. Since most cars (or boats) donated to charity are resold, you must know the resale price of your car donation for your tax records, if the car or boat is worth more than $500. Make sure that the charity sends you this record.
If the charity keeps the car or boat and uses it in its charitable work, or if your car is worth less than $500, then you can report its "fair market value" (FMV).
Making a car donation to an organization that has as its mission to provide low cost vehicles to low-income buyers also allows the donor to deduct the car's fair market value or $500, whichever is less. You can use a resource such as Edmunds' FMV Used Vehicle Appraiser to determine the FMV, which depends on what a used car sells for in your geographic vicinity. The FMV may be lower than the so called "blue book" value.
- Keep a paper trail of your car donation. If your vehicle or boat donation is worth more than $500, attach IRS Form 8283 to your tax return. If it’s worth more than $5,000, you must include an outside appraisal. Proof of the donation, such as a receipt from the charity, is also required by the IRS and a copy of the title change.
You can get more information from IRS Publication 4303, "A Donor’s Guide to Car Donations."
Even though making a car donation to a charity might seem like more work than it is worth, do make the effort. Do it in the name of that car that served you well, and to help out a worthy cause. Making a car donation to charity really is a better alternative than a direct trip to the junk heap.
Some charities that accept a car donation directly or through reputable car donation agencies include: