WASHINGTON, January 22, 2014 —Donating an old, unused car to charity seems easy enough in all of the television and radio ads.
Give a charity your car or boat, you get the maximum tax deduction and a mother in need is now able to drive her teenage son to football practice instead of becoming involved in a gang.
Unfortunately as the saying goes, a few bad apples spoil the bunch and because some people saw this as an opportunity to get easy money, on both ends of the donation process, the system is no longer as straightforward as it once was.
I Get to Deduct the Blue Book Value, Right?
Wrong. The old tax code allowed just that but since 2005 a $500 ceiling applies. This threshold applies when a charity turns around and sells the car to a third party which many do en masse for a flat fee of as low as $45.
For example if you donate a car that is worth $2000 and the charity then sells it for $400, you can only deduct the $400 sale price.
If the car is sold by the charity for more than $500 the donor must complete Section A of IRS Form 8283 and attach it to their taxes along with the substantiation of the Internal Revenue Service allowed donation amount which the charity must provide within 30 days.
So How Do I Get the Maximum Donation?
There are four IRS rules under which you can get the maximum donation:
- When the charity intends to use the vehicle for work that the charity does such as delivering meals to those in need instead of selling it.
- When the charity sells or gives the car to a needy individual below the value of the car and the purpose of the charity is to provide transportation to those in need.
- When the charity intends to make “material improvements” to the car. Any work to improve the life of the car fall under this stipulation.
- When a charity auctions the car for less than $500. You can claim $500 or the fair market value, whichever is less.
What Charity Should I Choose?
Deciding on whom to donate your vehicle to should start with a phone call to a charity that you respect the mission of to see if they accept vehicles. If they do want your car ask what they will do with it so you can make an informed decision. During the phone call make sure you also check to make sure that they are an exempt organization with the IRS.
Some organizations do good work but are not recognized as charitable organizations by the IRS and therefore you will not get any tax deduction from donating your car to them.
Also, unfortunately there are some scams where people will take advantage of others good intentions.
You can check on an organization’s IRS status by using the IRS’ online tool at their website.
If you do not know a charity that you are interested in and are concerned about being taken advantage of, check with the Better Business Bauru, Charity Navigator or Forbes 200 Largest Charities List to find an honest, worthy cause.
How Do I Make Sure I Don’t Get Parking Tickets for the Car after I Donate it?
Make sure to complete the transfer of a vehicle with your local Department of Motor Vehicles to the charity. Never agree to leave any information on the donation papers blank.
Scamers will try to explain that the ownership needs to be left blank because the car will ultimately end up with someone in need that they do not have the name of yet. You are donating the vehicle to a charity and that charities name needs to be filled in on the re-title. If the charity does not want to do that, walk away, another reputable charity will be happy to make sure all the paperwork is complete.
Keep a complete paper trail of your donation. It may seem cumbersome but it is probably the largest charitable donation you will ever make and like with any sale of a car, you want it crystal clear that you are no longer responsible for that vehicle.
Finally, remember that the car needs to be donated to a charity by December 31 in order to claim it on your taxes; otherwise you need to wait until the next tax year.