Have an old car that’s just gathering dust? Well, you may be able to donate your vehicle to a charity and receive tax benefits from it. If this sounds like a good trade-off, follow our guide below on how to donate your car to charity.
How to Donate a Vehicle
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Find a Charitable Organization that Accepts Car Donations
The first step in donating your car to charity is finding a charitable organization that actually accepts vehicle donations. However, try avoiding for-profit organization and instead find a charity that will forward all profits to the charity. Although this part doesn’t necessarily take too much research, it’s worth to find a few charities and go with the one that will forward the most proceeds.
If Your Car is Operable, Drive it to the Charity
Charities usually hire a local tow company to fetch the cars that are being donated to the charity, but you can cut down on their expenses by driving it to their location instead.
Transfer the Ownership of Your Vehicle Correctly
If a charity requests you leave the assignment of ownership area on their donation papers empty, be sure to find another charitable organization. If you don’t sign over your vehicle to the nonprofit themselves, you’ll be responsible for any tickets or violations during the time it’s being turned over to the charity. Also, keep in mind that if the charity doesn’t register the car before using or the buyer doesn’t register it after the auction, the car is technically still yours.
Determine Fair Market Value for the Vehicle
There are a few instances when you will need to know the fair market value of your donated vehicle. The FMV comes into play when:
- The car is worth less than $500.
- The charity keeps your vehicle for personal use.
- The organization improves your car before selling it.
- The car is sold at a discounted rate to a low-income individual.
To determine the fair market value, you can check the Kelley Blue Book or a NADA guide. You will need this amount when it comes time to deduct your donation on your taxes.
File the Necessary Paperwork
When tax season comes around, non-cash donations are one of the most common causes of an IRS audit, so it’s important to have proper documentation of your donation.
If your car is worth above $250, you’ll need to obtain a copy of the acknowledgement of the donation from the charity you gave your vehicle to. However, if your car is worth over $500, you’ll need to fill out section A of the IRS 8283 form and send it off with your annual taxes. If your car is valued over $5,000, you are required to obtain an independent appraisal and fill out Section B of the IRS 8283 form.
Choosing a Charity
Donate to a Reputable Charity
It’s important that you are donating your vehicle to a reputable charity. Although there are thousands of organizations to choose from, they’re not all the same. Research the top charities in the areas that accept car donations and see which ones benefit the community the most.
You should be on the lookout for charitable organizations that have catchy names and sound too similar to larger charities. For example, instead of Habitat for Humanity, it’s Habitat for Humans.
Now that you have a list of charities, review each of them individually and narrow it down to your top favorites for your final decision.
Check to See if the Charity is a 501(c)(3)
Most charitable organizations file themselves as non-profit, but 501(c)(4) charities are not tax-deductible, which spells bad news for you. Instead, look for 501(c)(3) organization that will allow you to write your donation off as a tax deduction.
Find Out How Your Donation Will be Dealt
It’s important that you get the full rundown of how your vehicle will be picked up and transported to the charity, in addition to filling out the right forms, to prevent getting into any legal troubles.
Determine How the Charity Will Spend the Money
This is an important consideration when deciding which charitable organization to gift your vehicle to. The charity should easily be able to tell you how and where the money will be spent. Choose the non-profit that will make the best use of your donation.
The Tax Benefits
Aside from the moral benefit of donating, there is also a financial one. Anytime you make a charitable donation to a qualified nonprofit, you will receive a tax break. The amount you receive on your taxes will depend on the amount you donated or the value of the donated object. Donating vehicles is not any different.
When you donate a car, you will be able to obtain a tax break. The amount you are allowed to deduct will be based on the amount that your donated vehicle is sold for. According to the IRS, if the charitable organization sells your vehicle for more than $500, you can claim the full sale price as your tax deduction. If your car is sold for less than $500, you can claim the fair market value up to a maximum of $500. In some cases, the charity may keep the vehicle for its personal use. If this is the case, you can claim the fair market value on your taxes.
There are a few things to keep in mind when donating your vehicle in order to get the full tax benefits that you are entitled to. You will want to ensure that you time your donation correctly. In order to claim a donated vehicle on your current tax return, you will need to donate it before December 31st of the same tax year. As mentioned above, you should also make sure that the organization is trustworthy and tax-qualified. Otherwise, you will not be able to receive the tax break. Additionally, in order to write off the donation, you will need to itemize your taxes instead of just claiming the standard deduction. This means having to file long Form 1040 and Schedule A, where you will list your itemized deductions.