Donating a car to a charity may be an easy way for you to clear out some space in your garage and increase your charitable contributions for the year, but there is a little more to it than just signing over the title and claiming your deduction. Some charities use donated vehicles for hauling goods or other services, but in most cases the donated cars are sold to raise funds for the charity’s programs. If a charity uses a dealer to sell the cars, the charity usually only receives a flat fee per car which can be as little as $45. In these cases a donor may only be able to claim a deduction based on the price at which the charity sold the car. Here are some other points for donors to consider before donating a car to a charity:
- Confirm that the charity is eligible to receive tax deductible contributions. You can find out if the IRS has determined their eligibility by searching for the charity’s status on the IRS website (www.irs.gov), using GuideStar (www.guidestar.org), CharityWatch (www.charitywatch.org), or just asking the charity to provide you with proof for your own records.
- If you want your deduction to be based on the fair market value of the car rather than the amount of money the charity receives from the sale of your car, give it to a charity that intends to use the vehicle in its operation or will pass the donation on to a person in need. This will ensure that you receive the maximum tax deduction on your car donation, as well as the satisfaction that the full value of the car is benefitting a charitable purpose. If the charity does intend to sell the vehicle, ask them what percentage of the proceeds they receive.
- To ensure that the charity will keep the full amount of any proceeds from the sale of the car, ask if they can accept car donations directly without the involvement of a third party. If it is possible, drive the car to the charity rather than using a towing service.
- Non-cash donations happen to be one of the most common triggers to an IRS audit so you will want to keep all documentation as to the value of the car. Take pictures of the car and save any receipts of upgrades that will help verify its value. Keep in mind it is the donor, not the charity, who is obligated to value the car and pay the penalties if an IRS challenge finds the figure inaccurate.
- If the car is worth more than $500, the donor must complete Section A of IRS Form 8283 and attach it to their tax return along with a written acknowledgement from the charity. If the charity ends up selling the car, they must provide the donor with a certification that the car was sold at "arm's length" between unrelated parties along with the sale price of the car within 30 days. If this happens, the donor's tax deductions will be limited to the total amount the charity sold the car for. If the charity does not sell the car, it must provide the donor with a receipt within 30 days of the contribution. The charity may also be required to provide certification to the donor stating how it plans to use or improve the car and stating that it promises not to sell or transfer the car. Penalties are imposed on charities that provide fraudulent acknowledgements to donors.
- If the car is worth $5,000 or more, an independent appraisal will be necessary. The donor must also fill out Section B of IRS Form 8283. For cars worth less than $5,000, use sources like Kelley Blue Book or National Auto Dealers Association to determine the market value. Make sure you use the correct figures for the date, mileage, and condition of your car. Picking the highest figure for your car model and year without taking into account other factors may not meet IRS approval.
- Finally, make sure to get a receipt from the charity for your car donation.
For more information on donating a vehicle, see the IRS' guide to car donations here.
(Tips compiled from www.charitywatch.org)