At first sight, donating a car is the easiest option if you want to get rid of it. You will do some good and lower your taxes at the same time. However, it’s a dangerous delusion that can cause problems for you. Pick a charity carefully and follow the rules – it is you who is obligated to value the car properly and who will pay the penalties in case IRS challenge finds your measures erroneous. Besides, you won’t know the actual figures for tax deduction instantly – the process may take up to three years.
Pick a Charity that is Qualified and Experienced in Car Donations
First of all, check if the charity is an IRS-approved 501(c)(3) organization. Approved charities are generally listed in IRS Publication 78 (or you can use the IRS’s exempt organizations select check tool). Religious organizations aren’t required to file for 501(c)(3) status, but they still count as qualified. Otherwise, your tax deduction will be not valid.
Ask if the charity accepts car donations directly, without third-parties, and if it is experienced in it. Experienced organizations will significantly simplify the process for you.
You’re still making a charitable donation, so don’t give your precious automobile to any charity out there. Pick one that suits your aspiration for help.
Determine the Fair Market Value
There are exceptions which allow you to use the Kelley Blue Book, the Hearst Black Book, or a guide from the National Auto Dealers Association (NADA), but you still must figure out the Fair Market Value (FMV) for a car, not simply its highest value by the book. Use the FMV when:
- the charity keeps and uses your car instead of selling it,
- the charity makes repairs or upgrades before selling it,
- your car is sold with a discount to a person which has low income,
- your car is worth less than $500.
Otherwise, your tax deduction will be limited to the amount of money the charity receives from the sale of your car.
IRS Publication 4303 explains how to figure the FMV: “If you use a vehicle pricing guide to determine fair market value, be sure that the sales price listed is for a vehicle that is the same make, model and year, sold in the same condition, and with the same or substantially similar options or accessories as your vehicle.”
Keep in Mind the $500 and $5,000 Thresholds
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.
If the car is worth more than $5,000, an independent appraisal is necessary. The donor must also fill out Section B of IRS Form 8283.
If your vehicle runs, drive it to the charity yourself. In this case, the charity doesn’t have to pay someone to deliver the car and will get more money and you will be able to control the transfer process.
Don’t forget to remove the registration sticker from the car.
Be sure to get a receipt from the charity for your car donation – they must notify both you and IRS if the car is sold.
Be aware that non-cash donations such as donating a car are one of the most common triggers to an audit by the IRS. Document all figures and records of the deal.
Take photos of the car and save receipts for upgrades to verify its value.
Be sure to have the exact name and address of the charity, the date of the donation, the place where you donated the vehicle, and a written acknowledgment from the charity.
Consider Other Options
If you want to make a donation no matter what and get rid of a car, keep in mind that you can sell your vehicle yourself and donate the proceeds. You can sell it to a dealership, list it on Carrrs.com, or find some other way to sell it that is suitable for you.