Donate Your Car To Charity

You have received these offers in the mail and seen them in the newspapers.  “Donate your car to charity and receive a tax deduction!”.  Are they for real?  For the most part, yes.  Many not-for-profits would be thrilled to have a donation which will further their mission.  A donation worth possibly several thousand dollars is a windfall to many charities.

 

Is it really tax deductible? Again, yes, for the most part.  If you itemize your taxes.  There is some figure that is the correct amount to enter on your tax return as the value of your donation.  But what is it? 

 

Originally, the IRS allowed a taxpayer to donate a car to charity and deduct the “fair market value” of the vehicle.  As you can imagine, this got a bit out of hand.  The taxpayer’s interpretation of “fair market value” seemed to be a bit higher than the IRS’s interpretation.  People were deducting the full amount that a car dealer “might” get reselling the vehicle at full retail.  Not quite what the government had in mind. 

 

The charity certainly did not get the benefit of anything near to the taxpayer’s estimate of value.  Most charities use a service or “middleman” to sell the vehicle, and after paying a commission, the charity is left with a small portion of the originally intended donated amount.  This method usually results in the lowest percentage of the sales price to the charity – sometimes as little as 20% of the sale price.

 

In January 1995 the IRS changed the rules so donors need to do some research and paperwork before figuring the value of their donation. 

 

1)                   The charity must have a valid 501 (c)(3) tax status with the IRS. Any qualified organization should be happy to provide you with a copy of their certificate verifying this tax status. 

2)                   Speak with someone at the charity to see if a donated vehicle fits with their needs.  Some will actually use the vehicle for their operations instead of selling it for the funds.  A maintenance van for a charity which operates subsidized housing, a hatchback or mini-van for a program which delivers meals to home-bound residents, etc.  Some will prefer to sell the vehicle for the cash to further their operations.  Some may prefer not to go through the steps necessary to sell a vehicle.  Find out what their needs are to ensure that your donation makes the most positive impact. 

3)                   If your car is valued at more than $500 your deduction is limited to the charity’s Actual Selling Price.  The charity is obligated to provide the donor with a statement of sale, which the donor is required to attach to their tax return (the donor is not entitled to know the deduction amount prior to donating the vehicle).  This will almost always be substantially lower than the donor’s intended donation, especially if a “middleman” service if involved.

4)                   If the charity decides to keep the vehicle and use it for their own needs (maintenance, delivery of goods and services, etc), the donor must determine the fair market value of the deduction.  But be warned, the government believes that the fair market value will likely be substantially different (read, “lower”) than the “Blue Book” value.  If your vehicle donation is valued at over $5,000 you must obtain a written appraisal by a qualified appraiser no more than 60 days before you donate the car.  Most donors don’t take into account the condition of their vehicle, and the value of any repairs necessary, which will lower the deductible value.  Edmunds TMV Used Vehicle Appraiser is a good tool for estimating the value of your donation. 

5)                   For any donation over $250 you must receive from the charity a written acknowledgement, detailing the services given and received for this donation.  See IRS Publication 4303 for detailed information on this statement, which should be retained for tax purposes. 

6)                   State law requirements for vehicle titles – check with your state DMV about the process of transferring the title of your vehicle to the charity.  And don’t forget to remove your license plates, unless state law requires otherwise.

7)                   Check with your CPA about the validity of any deductions.  It’s not just as simple as claiming a charitable donation.  Before filing an erroneous tax return, get professional, qualified advice.  Doing good should not hurt!

 

Of course, if you are so inclined to make a donation to charity, there is another route – sell the car yourself and donate in the form of a check.  You are more likely to get closer to “fair market value” through this sale method. It’s more straightforward for your taxes as well. 

 

Whichever route you choose to take, we wholeheartedly encourage and applaud your community spirit!