A charity that uses a donated vehicle for transportation or hauling goods obviously benefits directly from such a donation. However, in many cases donated cars will be sold en masse, either by the charity itself or by a dealer to raise funds for the charity. In the case of a dealer, the charity generally receives a flat fee per car, sometimes as little as $45 per car.
Listed below are tips for donors who would like to donate a car to charity. Beware that the donor’s tax deductions for car donations may be limited to the price at which the charity sold the car.
To receive the maximum tax deduction on your car donation, and to receive the satisfaction that the full value of the car benefits a charitable purpose, give it to a charity that will use the vehicle in its operations or will give it to a person in need. Otherwise, your tax deduction will not be based on the fair market value, but will be limited to the amount of money the charity receives from the sale of your car. If the charity you are donating to does sell the vehicle, ask what percentage of the proceeds they receive. See Car Donations: Taking Taxpayers for a Ride for more. Ask if the charity accepts car donations directly, without involving a third party. If possible, drive the vehicle to the charity instead of using a towing or pickup service. This will allow the charity to keep the full amount of any proceeds from selling the car.
Make sure the charity is eligible to receive tax deductible contributions. Ask for a copy for your records of the organization’s IRS letter of determination which verifies its tax exempt status. Be sure that you get a receipt from the charity for your car donation. Be aware that non-cash donations are one of the most common triggers to an audit by the IRS, so you’ll want to document the value of the car and keep records of it. 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. Donors are required to file with his/her tax return a written acknowledgement from the charity. If the charity sells the car, the charity must provide the donor with a certification that the car was sold at “arms length” between unrelated parties and the sale price of the car within 30 days. In this case, the donor’s tax deductions will be limited to the total amount the charity sold the car for. If the charity does not sell the car, it must provide the donor with a receipt within 30 days of the contribution. The charity may also be required to provide certification to the donor stating how it plans to use or improve the car and stating that it promises not to sell or transfer the car. Penalties are imposed on charities that provide fraudulent acknowledgements to donors.
If the car is worth $5,000 or more, an independent appraisal is necessary. The donor must also fill out Section B of IRS Form 8283. For cars worth less than $5,000, use the Kelley Blue Book, the Hearst Black Book, or a guide from the National Auto Dealers Association (NADA) to determine the market value. Make sure you use the correct figure for the date, mileage, and condition of your car. Picking the highest figure for your car model and year without taking into account other factors may not pass muster with the IRS. Take pictures of the car and save receipts for new tires or other upgrades to verify its value. Remember, it is the donor, not the charity, who is obligated to value the car and who will pay the penalties if an IRS challenge finds your figure inaccurate.
Donating a car to charity? You might want to pump the brakes
Donating a car could be one of the least cost-effective ways to aid a charity, says industry expert.The car-donation industry is riddled with fraud and deception, with multiple states investigating outfits for false advertising and self-dealing.These eight tips can help donors protect themselves while trying to help out others.Thinking of donating your clunker to charity for a nice tax deduction? Proceed with caution
The gifting of used cars to “charities” has become a favorite way for Americans to dispose of unwanted vehicles. And why not? You can avoid the headache of selling or junking the car, help a charitable cause and lower your tax burden all at the same time.
Unfortunately, the experience is rarely, in reality, such a win-win
situation. Not only do charities typically see little of the proceeds
from a used car sale, but donors can run afoul of the taxman if they’re
“At the end of the day, donating a used car could be the least cost-effective way to give to a charity,” said Stephanie Kalivas, an analyst with CharityWatch, an organization that monitors the charitable giving industry.
The problem is the industry is riddled with fraud and misrepresentation. Attorneys General from multiple states have investigated car donation charities for false advertising and self-dealing. Many of the organizations are for-profit intermediaries that give token contributions to a participating charity. Others misrepresent the cause they support and/or give low percentages of their funds raised to their stated targets.
Kars4Kids, for example, a New Jersey-based organization with an
insipid yet highly successful advertising jingle, has received more than
450,000 car donations, according to its website. The organization,
however, got a D rating from CharityWatch because it distributes less
than 50 percent of the money it takes in and because, despite a national
advertising campaign, it fails to adequately disclose that the money
goes to benefit Jewish children only, and almost exclusively in the New
York/New Jersey area.
“They’re not transparent about what they do,” Kalivas said. “A lot of these organizations mislead the public, and people need to be careful.”
Wendy Kirwan, director of public relations for Kars4Kids, said the costs of marketing and operating the car-donation program are high but that because the organization processes donations in-house, more money goes to its charitable work than others who use third parties. She also said that while the catchy advertising jingle doesn’t spell out which kids benefit from the charity, the information is readily available on their website kars4kids.org. “This is an innovative way to support charity in a way that helps the charity and the donors,” said Kirwan. “A lot of people wouldn’t otherwise be donating to charity if it wasn’t with their car.”
For people solely looking to dispose of an unwanted car for which they won’t take a tax deduction, it may not seem to matter what happens to the vehicle and who benefits. Kalivas, however, suggests that charities would be much better off if people sold their cars themselves and donated the proceeds, or simply called up charities they know to find out if they have car donation programs.
If the car in question is valuable and you plan to take a deduction for it, protect yourself. Individuals donating cars can inadvertently mark themselves with big red flag for Internal Revenue Service auditors
When donating a car, here are eight key things you should consider to maximize the benefits to charity and minimize the risk to yourself.
- Research the charity you plan to give it to. If it doesn’t have 501(c)(3) non-profit status with the IRS, it is not a charity and your donation is not tax-deductible.
- Pick efficient charities to give to. There are multiple organizations such as CharityWatch that evaluate charities and rate them for efficiency in supporting their causes.
- Itemize. To take a tax deduction for a car donation, you have to itemize deductions on your return. There are detailed rules about the amount you can claim. Taxpayers can deduct the full market value of a donated car under three circumstances: The charity uses the car in its operations; it materially improves the vehicle to sell or use it; or the charity donates or sells it to a needy person for below market value. Otherwise, you can only deduct what the charity receives as proceeds from selling the car.
- Get a receipt. Make sure to get a receipt from the charity for the vehicle and eventually a document certifying how much the vehicle was sold for. Charities are required to provide that document within 30 days of selling the car.
- Don’t forget IRS form 8283. If the sale price or fair market value of the car is greater than $500, you have to complete section A of IRS form 8283 and file it with your tax return. Consult the Kelley Blue Book, the Hearst Black Book or National Auto Dealers Association for market values. If the car is worth more than $5,000, you need to get an independent appraisal of it and also complete Section B of Form 8283.
- Drop it off. If the car is road-worthy, drive it yourself to the charity you’re donating to. It saves money and ensures you’re not giving the car to some unrelated, for-profit intermediary. Make sure to sign over the title of the car to the organization and that a representative signs it, as well. If someone is picking the car up, have them sign the title and take a photocopy of it. People have been on the hook for liabilities on donated cars that were not properly signed over to a new owner.
- Snap it. Take pictures of the car and keep receipts for work and repairs done on it — particularly if you’re claiming a deduction for it.