Donate Your Car for a Cause
In the last few years, the idea of donating older cars to charity is an idea that has begun to take hold. Spurred on by tax advantages, many people like the idea of helping a good cause and getting a little benefit from their action.
Because it’s such a new idea, donating a car to charity may make people nervous. They don’t know what to expect or how to go about it. As a result, it’s easier to sell a car or have it towed off to a junkyard.
It’s actually very easy and most charities that accept car donations will help you through the process. Here are some common questions and answers about car donation programs.
Are Car Donation Programs Real?
Some people doubt whether car donations are real. It doesn’t make sense to them to give a way a car, even if there are some benefits to the donor. They are caught up in the idea that it doesn’t sound right and there can’t possibly be a way to benefit from car donation.
Car donation programs are real and the IRS does offer tax benefits to anyone who donates a car to charity – just like the benefits for making cash donations or contributions of clothing or furniture. The only restrictions that apply involve the amount of money you can claim as a deduction on your tax return.
How Do Car Donation Programs Work?
Many charities accept car donations with the idea that they can turn around and sell the car at auction. The money from the proceeds can then be used to pay the expenses of the charity’s programs.
Other charities accept cars in order to provide them to people who need transportation. In our society, cars are considered a necessity. Someone without a car can feel removed from society, isolated and facing discrimination. Opportunities – jobs, education, and social activities – can be missed when someone doesn’t have a car. These charity organizations provide cars for people who need them.
Other organizations don’t regularly accept cars but will accept a vehicle if it helps them fulfill their mission. A soup kitchen, for example, might have a need for a new truck to help them pick up food and supplies and deliver them to the kitchen. Since the donation of a delivery truck would help them with their primary purpose, they would rather keep the truck than to sell it or give it away.
Do People Really Donate Cars to Charity?
The short answer is yes. Since 1992, an estimated 35,000 cars are donated to charitable organizations each month. For whatever reasons, people see car donation programs as a viable alternative to selling, storing, or junking their old cars once they buy a new one.
What Do I Need to Know Before I Donate?
There are a few things you’ll want to consider before you donate a car to charity.
- Check out the organization. Do you agree with the mission of the organization? Do you want to help further their cause?
- Will you receive a tax benefit from your donation? Make sure the organization is a registered non-profit and that you’ll be eligible for a tax benefit if you donate.
- Find out the value of your car. Your tax deduction may be based on the fair market value of the vehicle. You’ll need to know this before you donate.
How Do I Donate a Car?
First you want to consider the organization to which you are planning to donate. Many charities advertise their car donation programs in local newspapers, television, and radio. After hearing about a program you might want to investigate what the charity does.
You may already be involved in a charitable organization through volunteer or community activities. A quick call to the main office will answer questions about whether they have a car donation program in place or have a need for vehicles.
Once you find the right charity, you’ll need to work with them on the details. A simple call will start the process.
Since donation programs have become so popular, many charities have begun contracting with companies who handle the donation process for them. These companies will help you with the paperwork and may even pick up and deliver the car for you for no charge.
Of course, you can expect to receive a receipt for your tax-deductible contribution.
What Kind of Tax Benefits Do I Receive?
First of all, just because you donate a car doesn’t mean you’ll get to take a deduction on your taxes. Charitable contributions are deducted on the federal Schedule A. This means that to claim your car donation, you’ll need to itemize your deductions. Depending on your marital status, you’ll need to come up with a lot of other deductions like medical expenses, home mortgage interest, property taxes, or unreimbursed business expenses to receive any tax benefit from your donation.
The maximum amount you will be able to deduct is the fair market value of your car. No matter how much you paid for the car, you’ll only be able to deduct what its worth at the time of the donation.
The IRS considers fair market value to be the price a willing seller and a willing buyer would agree to if both parties knew all the facts about the car and neither one was forced to buy or sell. Although blue book value could be a good starting place to determine fair market value, many cars sell for far below blue book value, so you can’t rely on that method alone.
You’ll need to keep records showing how you determined the fair market value of the car in case the IRS ever audits your return.
If the charity sells the car at auction without using the car for an extended period of time or investing in substantial upgrades, the most you will be able to claim on your tax return is the sale price received by the charity. There are additional requirements involving charities that sell donated cars at auction. You may have additional tax filing requirements if this is the case.
The charity will provide you with a receipt for tax purposes if the value being claimed is more than $250. If you claim a deduction of more than $5,000, you may be required to obtain a written appraisal for the vehicle at the time of the donation.
IRS Publication 4303 has more information on tax benefits and responsibilities for people who donate a car to charity.
