Donating a car to charity requires almost as much research as buying one. These tips will ensure there’s a tax benefit for you and that you are donating to a legitimate group.
Know what your car is worth. Your vehicle does not have the same value to a used car dealer and to a charity. Current tax laws do not allow you to claim “fair market value” for your donation, only what the charity confirms in writing as the value. According to auto information experts Edmunds, unless your vehicle is in good enough working condition for the charity to use by its own personnel or to give to a needy client, it most likely will be sold at auction or to a salvage yard for parts. Its value then is little or nothing, which is what you’ll be able to claim on your tax return.
Choose a qualifying charity. Be sure you are donating to a nonprofit group approved by the IRS as an “exempt-status” or 501(c)(3) organization. My go-to site is Charity Navigator, which rates charities by how much money they spend on such things as fundraising and executive pay with how much donated money and goods is actually used for the programs they advocate. You might find that the most heavily advertised car donation groups have the lowest ratings. As I wrote on LOTC sister site ecoXplorer, also beware of charity scams that crop up after a headline-making national or international disasters.
Also, ask the charity for the incorporation document from the secretary of state in the state where you are donating. You might find that the charity is not legally entitled to accept vehicles as donations, which could red-flag you for an IRS audit or leave you liable if your donated vehicle is involved in an accident.
Many religious organizations also qualify, even though they are not required to file for 501(c)(3) status. There’s a comprehensive list on the IRS’ exempt organizations site.
Transfer the title. Be sure to transfer the title of the donated vehicle to the charity, since it is the responsibility of the owner to pay registration and licensing fees. Once you donate, you are no longer the owner. If the charity tells you that’s not necessary, consider it a red flag and drive away.
Itemize your tax return. If you want to claim your vehicle as a tax deduction, you must itemize your return, even if that is your only deduction for the year. But if the sum of your itemized deductions including the vehicle does not exceed your standard deduction, then you might not want to claim itemized deductions after all. So, you might want to confer with a tax consultant before you make that phone call to donate Old Breakdown.
Save your paperwork. The tax benefits for a donated car require documentation, whether the car is junked, sold at auction or given to a charity’s client. Be sure to keep all these papers or electronic files because you’ll need them at tax time. IRS Publication 4303 has all the details.
Consider an alternate approach. Donating your car may not make sense. Instead of donating the vehicle outright, consider selling it yourself, including to a junkyard, and donating part or all of the proceeds. This path is most likely to bring the highest return on your car’s value, which benefits both you and your charity of choice.