Know All the Options Before Donating Your Car to CharityKnow All the Options Before Donating Your Car to Charity http://learningcenter.statefarm.com/finances-1/taxes/know-all-the-options-before-donating-your-car-to-charity/ bb3 Jul 31, 2013
By Staff Writer State Farm™ Employee
Have an older car you're thinking about trading, selling, or having hauled away to the junkyard? If so, you might want to consider donating it to charity. It can be easier than selling, earn you a tax deduction, and help out a worthwhile cause.
But before handing over the keys, make sure you know who you are giving your car to and what they plan on doing with it. While many charitable organizations would appreciate your generosity and make good use of your vehicle, there are, unfortunately, some fraudulent and misleading companies looking to make money off these transactions. It pays to be informed.
Do Your Homework
- Find a charity that directly accepts car donations. If possible, you may want to avoid intermediary donation organizations since they generally keep a majority of the profits from sales. Look for a charity that directly handles the transaction, so they can keep 100% of the profits. Doing so also helps you maximize your tax incentive since the IRS bases your deduction on the actual amount the charity receives from the sale of your car.
- Speak directly to the charity. You can find out what they plan to do with your vehicle. Will it be fixed up and given to the poor and needy? Or will it be resold? And if it is resold, what share of the proceeds will go to the charity?
- Make sure the charity is tax-exempt. If it isn't a 501(c)(3) organization, your gift will not be tax-deductible. To see if an organization qualifies, you can ask for a copy of its exemption letter, or use the IRS's exempt organizations online search. Churches, synagogues, temples, mosques, and governments are automatically exempt.
- Determine the fair market value of your car. Try to be as accurate as possible because the IRS sometimes takes a close look at charitable deductions. Make sure you use the correct figure for the date, mileage, and condition of your car. You can determine fair market value (PDF) using a tool such as Edmunds.com's True Market Value®.
- Transfer the car to the charity. Make sure you formally sign your car over to the organization so you can't be held responsible for anything that happens once it leaves your hands. Check with your state's Department of Motor Vehicles on how to do this properly.
- Deliver your vehicle to the charity yourself. If the car is drivable and you are able, it is a nice gesture since charities have to pay someone to pick it up, which cuts into their profit.
- Write down transaction information (if claiming less than $250). If the amount you want to claim on your taxes is less than $250, simply write down the name and address of the charity, the date of donation, the place where you donated the car, and a description of the car.
- Get a written receipt (if claiming $250 or more). You must obtain a contemporaneous written acknowledgment — such as an IRS Form 1098−C (PDF) — if claiming a total tax deduction of $250 or more. Generally, for amounts of more than $500, the charity has 30 days from the sale of the vehicle to provide a contemporaneous written acknowledgement to you, which will include the gross amount the charity has received from the sale of your vehicle. For amounts of $250 but not more than $500, you must receive a contemporaneous written acknowledgment on or before the earlier of when you file your tax return or the due date for filing your tax return. These contemporaneous written acknowledgements may be used to assist you in filing your tax return.
Before January 2005, the IRS allowed tax deductions based on a vehicle's market value, no matter how much it sold for. The process on how to determine the value of a donated vehicle for your tax deduction is now much simpler. The IRS has detailed information on record keeping and filing information for donating a car to charity.
- If the charity uses the vehicle. You can claim fair market value if they make significant use of the vehicle or make material improvements to it, such as major repairs that significantly increase its worth.
- If the vehicle sells for $500 or less. You can claim fair market value (up to $500) of the vehicle.
- If the vehicle sells for more than $500. You can claim the exact amount the vehicle sold for.
- If the vehicle sells for more than $5000. You can claim the exact amount for which the vehicle sold and must complete an independent written appraisal.
Don't let for-profit donation companies or questionable charities scare you off. With a little legwork, you'll find a charity that can really use your donated vehicle, and you can save a little come tax time.
Neither State Farm nor its agents provide tax or legal advice. Please consult a tax or legal advisor for advice regarding your personal circumstances.
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