How To Get The Most Out Of Your Car Donation, For You And The Charity
By Aaron Crowe
Donating a car to charity is one of the few times when the donor, and not the charity, is the biggest winner.
And we’re not talking about the emotional or intrinsic benefits, though those are good too.
While the tax break for the donor shouldn’t be more than the car is worth, the charity may end up getting less money after a middleman takes a cut, or the car may be used by the charity for deliveries or other services, which will cost it in the long run by paying for the car’s upkeep.
Musician Anand Bhatt, who has donated three Oldsmobiles in recent years when he was buying new cars, says he has given to a private school or church that is small enough that he can see first-hand where the money is going.
Bhatt says he’s received tax breaks from $500 to $1,500 for his car donations. While everyone’s tax situation is different, Bhatt says it’s worthwhile to fill out a mock tax form with your estimated earnings to see how much you’ll get from donating a car worth $1,000, for example.
No matter how easy it is to donate a used car and get a tax break, there are things to look out for to ensure you’re donating to a legitimate charity. After all, you want to make sure you’re legally getting the tax break you want, and that a reputable charity will make the most of your donations.
Here are some places to start, according to Charity Navigator, a site that evaluates charities, and based on our interviews with people who have donated cars:
1. Give directly to the charity. Many charities don’t want cars delivered directly to them for the same reasons you wouldn’t want a clunker delivered to your driveway: It’s a lot of hassle that can be better solved by giving you cash.
Charity Navigator recommends avoiding for-profit intermediary organizations that advertise everywhere for car donations. They keep the majority of the money from your donation, with even reputable agencies keeping 50% of the car’s value, and some keeping 90% or more.
If the charity handles the transaction themselves, they’ll keep all of the profit.
2. Drive your car to the charity and transfer ownership. Instead of the charity having to pay someone to pick up or tow in your car, help it cut costs by driving your car in or towing it in yourself.
Some charities will ask you to leave the assignment of ownership space blank on the charity donation papers, Charity Navigator warns. Don’t do it. Without formally signing your car over to the nonprofit, you will be responsible for any parking tickets, or liable if it’s used in a crime.
Since the charity will likely sell the car as fast as it can, if the buyer doesn’t register the car, it will still be seen as your property under the law if you haven’t transferred ownership.
Robert Baker, a technical writer in New Jersey, had this happen to him when his car with a broken transmission was towed as a donation to the Salvation Army. Baker got a court summons a few months after he donated the car because the new driver got into a hit-and-run accident in Philadelphia with the repaired car.
Baker contacted the Salvation Army and about a week later says he got a notice that the issue was resolved, leaving him satisfied with the organization’s car donation process.
3. If using an intermediary agency, find out how much goes to charity. Because the IRS doesn’t require car donation agencies to contribute a set amount from the car’s proceeds, ask what percentage it gives to charity. Ask the charity how much it will get from your car. If they don’t know or won’t tell you, move on.
According to Charity Navigator, some state attorney generals are prosecuting the for-profit middlemen for advertising themselves as charities and misleading the public on how much money goes to charitable causes.
Jeff Vail, a safety director, says he donated a car to the National Kidney Foundation after looking at its website and calling the group for more information. Vail found out that it turns over 80% of his donation to research, and used 20% for overhead, which he found to be satisfactory with apparently no middleman connection.
4. Give to a 501(c)(3) organization. That’s the non-profit status the charity must have with the IRS to be listed as a public charity. Claiming non-profit status isn’t enough for a charity to get you a tax deduction. Organizations with a similar status — 501(c)(4) — are generally not tax-deductible, and include groups such as political organizations that can lobby the government, such as Disabled American Veterans.
5. Correctly value your car. New federal laws in 2005 changed how donated cars can be valued for tax deductions. The published fair market value of cars worth more than $500 can no longer be deducted. The new rules require the deduction to be determined once the car is sold and when the charity sends the owner a receipt indicating the exact amount the car was sold for at auction.
If the car is worth more than $500, complete IRS Form 8283 for noncash charitable contributions and attached it to your tax return.
If the car is worth less than $500, it’s among the exceptions the IRS allows for using the fair market value, or FMV, of your car to determine how much of a tax break you’ll get. You can’t just use the highest value listed for the year and make of your car.
FMV can also be sued if the charity keeps and uses the car, if the charity makes improvements to the car before selling it, or if your car is sold at a discounted price to someone with a low income.
Whichever way you value your car, be sure to get a receipt.
Aaron Crowe is a freelance writer specializing in personal finance topics for CheapCarInsurance.net.
