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Wednesday, April 18, 2018

Does a Charity Really Want Your Old Clunker?

You’ve probably heard the jingle. You know, the catchy one about donating your old car to help kids in need. Or, perhaps you’ve heard a pitch on your local public radio station to support them by donating your used vehicle. They claim it doesn’t even need to run, but how can that be? Can that old clunker leaking oil in your driveway really do some good? 

Donating an old or unwanted vehicle can do good for your favorite organization. But, it’s important to do your homework before you drive it, tow it, push it, or have it dropped off on the charity’s doorstep. Keep reading to learn more.

Find the right charity.

Let’s start by saying that not all charities accept car donations. Do a little homework to find an organization that accepts vehicle donations and give them a call. Confirm that they’re interested in your car and are willing to accept it.

Using a for-profit intermediary to handle your donation often reduces your tax-benefit and costs the organization money. Look for a charity that is capable of handling the donation themselves. If your car is still reliable, consider supporting a local service organization that can use your car to run errands, deliver meals, etc.

You can use Charity Navigator’s Advanced Search Tool to begin looking for the right organization.

Make sure your donation is tax-deductible.

To write off your vehicle donation you must gift the car to an IRS-determined 501(c)(3) organization. When you call the organization, confirm that they have received tax-exempt status. You may ask to see a copy of their IRS determination or tax-exempt letter for your records.

Organizations that have received a 501(c)(4) determination from the IRS are generally not tax-deductible. If you are considering donating your car to an organization with this status confirm whether or not you will be able to deduct the value of your vehicle.

Transfer the car correctly to the charity.

It is important to formally sign over the car to the charity and complete all of the title transfer paperwork completely. It is critical to pass the assignment of ownership to the charity. Failure to do so will mean you are still liable for the vehicle and any tickets or fines it incurs.

Use the Fair Market Value to determine your car’s donation value.

Typically, you can only deduct the amount the organization sells the vehicle for at auction. They will provide this to you in a tax receipt.

However, there are a few exceptions that allow you to deduct the Fair Market Value (not simply the highest value) of the car. They are:
  • The charity keeps the car and uses it
  • The charity makes improvements to the car before selling it
  • The car is sold at a discounted price to a person with a low income
  • The car is worth less than $500
The paperwork: Do it!

If your car is valued over $250 it is critical to keep all of your documentation and paperwork. Additionally, if your car is worth more than $500, you must complete Section A of the IRS Form 8283 and include it with your annual tax submission. Finally, if your car is worth more than $5,000 you must have it independently appraised and complete Section B of the IRS Form 8283.

Again, it is critical to hold onto all of your documentation and records of the donation and transfer.

For more information, check out the IRS’ Guide to Vehicle Donations.

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