Tips for Donating a Vehicle to Charity

Image: source A charity that uses a donated vehicle for transportation or hauling goods obviously benefits directly from such a donation...

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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.
• 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.

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• 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.

Source: https://www.charitywatch.org/charitywatch-articles/tips-for-donating-a-car-to-charity/42

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It's easy to donate a car to charity if all you want to do is get rid of it. Simply call a charity that accepts old vehicles and it will tow your heap away. But if you want to maximize your tax benefits, it's more complicated. Here's a walk-through of some of the considerations, with the usual proviso that you should discuss these issues with your tax preparer before you act.

You Must Itemize Your Return
If you want to claim a car donation to reduce your federal income taxes, you must itemize deductions. You could itemize even if the donated auto is your only deduction, but that's usually not the best choice.

Here's the math: Suppose you're in the 28 percent tax bracket and the allowable deduction for the vehicle's donation is $1,000. That will save you $280 in taxes. If you're in the 15 percent tax bracket and you get that same $1,000 deduction, it will reduce your taxes by $150.

If the car donation is your only deduction, it's likely that taking a standard deduction would save you thousands more dollars in taxes. The only way that donating a car nets you any tax benefit is if you have many deductions and if their total, including the car, exceeds the standard deduction. And remember, you can always donate as much as you want to charities, but the IRS limits how much you can claim on your tax return.

The Charity Must Qualify
Only donations to qualified charities can provide a tax deduction for you. A qualified charity is one that the IRS recognizes as a 501(c)(3) organization. Religious organizations are a special case. They do count as qualified organizations, but they aren't required to file for 501(c)(3) status.

To help you determine whether a charity is qualified, the easiest thing to do is to use the IRS exempt organizations site, or call the IRS toll-free number: 877-829-5500.

A Key Concept: Fair Market Value 
The IRS defines fair market value as "the price a willing buyer would pay and a willing seller would accept for the vehicle, when neither party is compelled to buy or sell and both parties have reasonable knowledge of the relevant facts." In this scenario, neither the buyer nor the seller can be an auto dealer. Both must be private parties.

What complicates the matter for taxpayers is that under current IRS rules, you can only deduct a vehicle's fair market value under four very specific conditions:

1. When a charity auctions your car for $500 or less, you can claim either the fair market value or $500, whichever is less.
2. When the charity intends to make "significant intervening use of the vehicle." This means the charity will use the car in its work
3. When the charity intends to make a "material improvement" to the vehicle, not just routine maintenance.
4. When the charity gives or sells the vehicle to a needy individual at a price significantly below fair market value.

Determining Fair Market Value 
Edmunds can help you determine your vehicle's fair market value with its Appraise Your Car calculator. Enter the car's year, make and model, as well as such information as trim level, mileage and condition. By looking at the private-party value, you'll get an accurate idea of what your vehicle is worth.

Note the caution from IRS Publication 4303: "If you use a vehicle pricing guide to determine fair market value, be sure that the sales price listed is for a vehicle that is the same make, model and year, sold in the same condition, and with the same or substantially similar options or accessories as your vehicle."

Getting Fair Market Value Is Rare
It's not realistic to expect that your car will meet one of the stringent fair market value requirements. Only about 5 percent of donated vehicles are suitable for use by charity recipients. About a third of donated cars are junked, and the rest are auctioned off.

So unless your car is in good or excellent condition, it will most likely be sold at auction or to an auto salvage yard. In that case, your deduction is based on the car's selling price, not your estimate of its fair market value. And note that this price is not necessarily something you'll know when you donate the vehicle, or even before the next tax-filing time, since an organization has up to three years to sell your car.

Paperwork Is Important
Getting tax benefits for a donated car requires a lot of documentation, whether the car is junked, sold at auction or given to a charity's client. IRS Publication 4303 has all the details. Be sure to keep all the papers or electronic files. You'll need them at tax time.

If there's a delay in getting paperwork from the charity, your first option, according to IRS Publication 526,  is to file Form 4868. That's a request for an automatic six-month extension of time to submit your return. Your second option is to file the return on time without claiming the deduction for the qualified vehicle. When the charity finally sends your notification, you can file an amended return using form 1040X to claim the deduction. You'll have to attach a copy of the notification to your 1040X.

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Another Approach To Car 'Donation'
Besides giving your car directly to a charity, there is another way your vehicle can help a charity and also maximize your tax benefits: You can sell the car yourself and donate the proceeds. By doing so, you might be able to generate more cash than if you let the charity sell it.

Parting with your old vehicle could help a nonprofit carry out its mission and also might make room in your garage for a new car. But how you proceed depends on your goal. If you're focused on getting rid of a junker with minimal effort and you'd look at the tax deduction as a nice bonus, then donating your car makes good sense. But if your goal is to maximize your tax deduction, carefully review these steps, consult with your tax adviser and then make an informed decision.

Source: https://www.edmunds.com/sell-car/does-charity-car-donation-still-make-sense-under-tougher-irs-rules.html