Does It Make Financial Sense To Donate a Car to a Charity?

You Must Follow the Rules To Get That Deduction

A Car Donation Could Help With Your Taxes

You can only deduct a vehicle's fair market value on your tax return under very specific conditions. | December 5, 2013 | iStockphoto

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.

If you want to maximize the benefits for both the charity and yourself, however, it's more complicated. Until 2005, it was easy for taxpayers to deduct the entire "fair market value" of a donated vehicle from their taxable income, reducing the taxes they'd have to pay to the Internal Revenue Service. (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.")

Allowing taxpayers to deduct the full fair market value for all those donated vehicles cost the IRS a lot of dollars, however, so the agency tightened the rules. Today, you can only deduct a vehicle's fair market value under very specific conditions. We're going to walk you through those conditions, with the usual proviso that you should discuss these issues with your tax preparer before you act. Also note that if your state or locality also levies income taxes, other rules may also apply.

You Must Itemize Your Return
If you want to claim fair market value for your car donation to reduce your federal income taxes, you must itemize deductions, says Twila D. Midwood, an enrolled agent based in Rockledge, Florida. An enrolled agent is a tax expert who can represent clients before the IRS.

If you've always filed 1040EZ tax returns and you plan to keep filing them, you won't be able to deduct any amount for the car donation. You can file a regular 1040 tax form and itemize, even if the donated auto is your only deduction. That's usually not the best choice, however, unless you like paying a lot more taxes to the IRS than you must.

"For tax purposes, because a donation is a deduction from your income, the tax benefit relates to your tax bracket," Midwood says. "It's not a dollar-for-dollar item."

Here's the math: Suppose you are in the 28 percent tax bracket. Your donated car's value, and thus the deduction, is $1,000. "The $1,000 deduction will save you $280," Midwood says. If you're in the 15 percent tax bracket and you donate a car worth $1,000, it will only reduce your taxes by $150.

If instead you take the standard deduction, which in 2012 was $5,950 for a single individual or $11,900 for a married couple filing together, you save thousands of dollars over filing an itemized return only for the purposes of detailing your car donation.

The only way that donating a car nets you any tax benefit is if you have many deductions, and if their total sum, including the car, exceeds your standard deduction.

The Charity Must Qualify
Your city councilman's campaign organization and your hobby club may be nonprofit organizations, but donating a car to them won't give you any tax benefits. Only "qualified" charities can provide those for you. A qualified charity is one that has been approved by the IRS as an "exempt-status" or 501(c)(3) organization, Midwood says. Most organizations will state in their advertising or receipts that they're a 501(c)(3) if indeed they are one, she says. "If you're not sure, ask."

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 visit the IRS's exempt organizations site.

You also can call an IRS toll-free number: (877) 829-5500. If you do this, you'll have to listen to some recorded information about tax forms that probably don't apply to you. You'll then be given the option to "Press 2" to talk to a customer service rep about exempt organizations. Note that the waits can be quite long: up to 30 minutes.

You can always donate as much as you want to charities, but the IRS limits how much you can claim on your tax return. "Charitable donations can't exceed 50 percent of your gross income," Midwood says.

How To Deduct Fair Market Value 
These are the four IRS rules under which you can get the maximum deduction (the fair market value) of a donated car:

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 a "significant intervening use of the vehicle." This means the charity will use the car in its work, such as delivering meals to needy people.

3. When the charity intends to make a "material improvement" to the vehicle, which is "anything that increases the car's value and prolongs its life," Midwood says. "It can't be a minor repair or maintenance; it must be something like fixing the engine or systems that run the car," she says.

4. When the charity gives or sells the vehicle to a needy individual at a price significantly below fair market value, and the gift or sale is part of the charity's mission of helping the needy who need transportation.

How To Determine Fair Market Value 
To recap, 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. Neither the buyer nor the seller can be an auto dealer. Both must be private parties.

Edmunds.com makes it easy to determine your vehicle's fair market value. And, as Midwood says, your assessment has to be "an apples-to-apples comparison."

IRS Publication 4303 explains this in more detail: "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."

Here's an example: Let's say your car is a 2003 Honda Accord DX sedan (the lowest trim level). It has 200,000 miles and it's in "average" condition. Edmunds estimates it would be worth $1,862 in a private-party sale in Southern California. You can't instead claim the $5,318 private-party value of a Honda Accord EX sedan (a much higher trim level) with 100,000 miles in "clean condition" (a condition grade that's one step up from "average").

Getting Fair Market Value Is Rare
It's not realistic to expect that your car will meet one of the most stringent fair market value requirements. Take it from 1-800-Charity Cars, which says it is the largest car donation charity in the United States. It picks up donated vehicles from across the country and gives as many of the cars as possible to people who need transportation. According to the charity, few donated cars are suitable to give to the people it serves.

"If 5 percent go to our clients, I'm thrilled," says CEO Brian Menzies. "Although we take any car, about one-third go straight to salvage, i.e., junk." The rest are auctioned and the proceeds go to the charity of the donor's choice, he says.

The point that Menzies is making is this: 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 fair market value estimate.

Note that this price is not something you'll know when you donate the vehicle. "An organization has up to three years to sell the vehicle," Midwood says. "If they sell the vehicle within three years, they must notify the IRS and the donor."

If the April tax deadline is approaching and the charity still hasn't sent you a notification of your vehicle's sale, such as an acknowledgement, receipt or form 1098-C, you have two options.

Paperwork Is Important
According to IRS Publication 526, the first option is to file Form 4868 to request 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.

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. One tip: Keep all the papers or electronic files. You'll need them at tax time.

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 vehicle yourself and donate the proceeds.

"If the qualified organization is going to sell the vehicle in order to receive cash, then it would make sense for an individual to sell the vehicle to a private party to maximize the amount of cash proceeds," Midwood says.

"Privately selling the vehicle might generate larger cash proceeds than if the organization were to sell the vehicle, she says. "The donor would then make a cash contribution to the organization."

Selling any car can be a hassle and selling one that's on its last legs poses challenges of its own. How you proceed depends on your goal. Are you focused on getting rid of a junker with minimum effort and you'd look at the tax deduction as a nice bonus? Then donating your car makes good sense.

If your goal is to maximize your tax deduction, carefully review the steps here and then make your decision. Whatever you decide to do, parting with your old car could help a nonprofit carry out its mission. And it also might make room in your garage for a new car.

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Tax Benefits of Donating a Car

You've seen the publicity: "Donate your vehicle and get a levy break." mechanically, that's factual.

But some persons who give away an vintage auto might find their tax break lesser than they anticipated. And a few donors, thanks to the intricacies of vehicle gift guidelines, might be adept to boost their deduction allowances.

Giving away a clunker to a benevolent society was once clear-cut. You could claim the vintage car's equitable market value, that is, the allowance a willing buyer would pay a eager trader for the merchandise. normally, you'd refer to auto valuation services, such as the Kelley Blue Book, to get an concept of the pledged car's worth, give it to your very popular nonprofit and then drive off with a tax shatter identical to that valuation allowance. No more.

Because some taxpayers got greedy, asserting much more than their old autos were worth, lawmakers squeezed the directions on how much you can compose off for a vehicle donation. Now the accurate tax shatter depends on the donor's asserted worth of the gift and how the benevolent society utilises the vehicle.

"This places taxpayers in the odd situation of not knowing the dimensions of their deduction when they make the donation," says Bob D. Scharin, older levy analyst from the levy & Accounting enterprise of Thomson Reuters.

$500 limit

In most instances, a taxpayer should take into account a $500 threshold on vehicular gifts. This worth amount applies to autos, boats and even airplanes. When the donated vehicle's worth (based on credible equitable market worth investigates) exceeds that allowance, claiming the deduction gets more perplexing.

This valuation ceiling arrives into play when a benevolent society deals a donated vehicle. In this case, just how much a taxpayer can deduct depends on the allowance the sale nets.

For demonstration, you donate your old position wagon that's worth $1,000. Under the old directions, that would be the allowance you could deduct. But now, if the benevolent society turns round and deals your donation for $800, your deduction is limited to the smaller sales price.

The benevolent society should give you substantiation of the interior Revenue Service-allowed donation allowance within 30 days of when you turn your car over to the benevolent society or, if the group sells the auto, inside 30 days of the vehicle's sale.

If you haven't perceived from the charity, give it a call and inquire that it send, or resend, you the donation specifics. in addition to, you now should encompass a exact replicate of the acknowledgment, IRS pattern 1098-C or an IRS agreeable alternate form that is dispatched to you and made a duplicate to the agency, with your tax come back. before, such documentation was usually only kept by the taxpayer in case the IRS interrogated a asserted deduction.

Intervening-use exclusion

The vehicle donation regulation, although, does provide a couple of exclusions that will permit a giver to claim the auto's equitable market worth.

Say you donated your $1,000 position wagon to a food bank. Instead of directly trading it, the group utilised the auto for several months to consign meals and other nourishment items to needy families. Eventually, the organization determined to deal the vehicle for $800. In this case, you could still assertion the full $1,000 fair market value of the auto as long as you obtained documentation from the nourishment bank on not only the sales price, but also how the auto was utilised for nonprofit works before the sale. Under the IRS guidelines, this is classified as "significant intervening use" of the vehicle that permits the taxpayer to assertion the higher deduction.

Other examples of IRS-accepted intervening use are a donated auto utilised by a charity to transport purchasers to medical practitioner appointments or a vehicle granted to a vocational school that used it in its automotive fix categories.

The IRS states a donor furthermore can claim a equitable market worth deduction if the benevolent society makes a material enhancement to the vehicle. This, according to the tax bureau, means major fixes that considerably boost the auto's worth. Material improvements do not encompass finish work (such as painting, waxing or rust proofing), dent or scratch exclusion, setting up of theft-deterrent apparatus, or the cleansing or repair of upholstery.

shatter for bargain-basement sales

What if the charity directly deals your pledged station wagon, but for a meagre $300?

Scharin says don't shortchange yourself. Under the new auto-donation directions, you might be adept to claim a $500 deduction even though the charity sold your auto for $200 less.

The IRS states this bigger deduction allowance is OK in cases where a benevolent society deals a pledged vehicle at a cost considerably underneath market worth, or even gives it away to a needy individual, as long as it's finished to further the charity's operation of assisting a poor individual who desires transportation.

Be very cautious here. Make certain the vehicle did indeed proceed to a needy one-by-one. soon after the vehicle donation directions altered, the IRS found out that some benevolent societies sold autos at auction but described that the sales -- at prices well underneath market worth -- were to disadvantaged purchasers, to initiate the exclusion that allows the donor a higher deduction allowance. If the IRS discovers such untrue describing, it could totally disallow your donation and deduction.

Also keep in brain that regardless of how a benevolent society disposes of your donated vehicle, your deduction cannot exceed the worth of your donation. So if you pledge a clunker worth $150, states Scharin, that is the allowance you can deduct even if the charity gives the auto away.

Other donation directions still request

Of course, the general levy regulations considering all charitable presents still request to automotive gifts.

First, the timing of your donation is critical. All charitable presents should be made in the levy year for which you are filing the come back. To assertion a donated auto on your present levy return, you should have given the vehicle to a benevolent society by Dec. 31 of the tax year for which it is asserted.

Be certain to check out the charity before lowering off your auto. Thousands of philanthropic groups accept presents of vehicles. The important thing is to make certain that the one you choose is a reputable and tax-qualified organization. Unfortunately, some con creative persons take advantage of people's good aims and accept vehicles that never go to philanthropic determinants.

Other groups may well do precious community work, but they are not approved charitable associations under IRS rules. Ask for copies of the group's federal tax-exempt rank documents. You furthermore can ascertain out the IRS' website book or directions to glimpse if the benevolent society is on the accepted register or examine GuideStar's registry at GuideStar.org, which provides data on millions of U.S. nonprofit associations. eventually, you can use IRS' online seek device, Exempt associations Select ascertain, to work out if the benevolent society meets IRS directions.

Charitable gifts require itemization

Next, to compose off your auto gift, you should itemize rather than of asserting the benchmark deduction. That means you have to keep pathway of what you give and document the long pattern 1040 and Schedule A on which you register itemized deductions.

If your old vehicle is the only deduction you can assertion on Schedule A, giving it to a charity may not be worth it from a levy standpoint. But if your itemized expenses are close to your benchmark deduction amount, supplementing the value of a donated vehicle could be just what you need to make itemizing the right tax alternative this year.

Also keep in brain that as a levy deduction, the value of your vehicle does not directly slash your levy bill. Deductions are utilised to reduce your taxable earnings, which usually does signify you'll owe less taxes. But a deduction's genuine worth counts on your levy bracket. That means a donation of a $300 auto converts to a tax slash of only $75 for a filer in the 25% tax range.

So if you would rather have the money rather than of a comparatively little levy shatter, sell your vintage auto. If, on the other hand, you're feeling bountiful -- or don't want to spend what it would take to get the clunker in sellable form -- giving it to a benevolent society might be the better route.

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Donate Car

Do you have a utilised vehicle you've been liking to pledge? vehicle donations made to benevolent society vehicles can help provide a deprived family with the transport they need to complete their every day tasks. If you don't have a vehicle to pledge, you can pledge genuine land parcel, vessels, trucks and vans to benevolent society vehicles.

Why Your Donation assists

benevolent society Cars collects used vehicles that persons select to pledge. vehicle donations benefit numerous people across the joined States. benevolent society vehicles has a kind of families who have obtained a vehicle, such as household aggression victims, natural catastrophe victims, the medically needy, families transitioning from public assistance to work or living in transitional dwelling covers, the working poor, infantry families and other non-profit organizations. Due to many different attenuating factors, these familes can not afford their own transport. Without a vehicle of their own, they are incapable to get to work, proceed to the store for groceries or entire other every day errands. Your donation of a utilised vehicle can help give these disadvantaged families the jump start they need to get back to a usual, more fulfilling lifestyle.
Why You Should pledge

If you have a used vehicle you no longer want or need, why not pledge it to benevolent society vehicles? benevolent society vehicles accepts any kind of vehicle you desire to pledge. Car donations do not even need to run. As long as it hasn't been exposed of its doorways and top covering, Charity Cars can accept your vehicle donation. There are numerous causes why you should pledge. vehicle programs sponsored by benevolent society vehicles help families all across the territory. Those of us who can pay for our own transport have the flexibility and proficiency to convey out our every day jobs without relying on other ones. Owning your own vehicle is a emblem of self-reliance. Throughout the United States many families do not know what it means to have those easy freedoms. When you pledge, car and other vehicle donations are granted to suitable families as a free gift from benevolent society Cars.

The car donation program by benevolent society vehicles assists a kind of clients. numerous of the families requiring a vehicle are mentioned to Charity vehicles by other non-profit assemblies, places of worship, communal services and from the Charity vehicles website. Those searching aid from benevolent society vehicles can apply through the website. As somebody who has suggested to donate car recipients are selected by you. Any one who donates a vehicle to the Charity Cars program will be given the opening to read the tales of those families in need and ballot on which one they think most deserves a vehicle. When a family has been chosen, benevolent society Cars will give them a call and let them know that they are the recipient of a the car you decided to pledge vehicle. vehicle donations are presented to the family free of charge.

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How To Donate A Car To Charity?

Our primary reason at charity navigator is assisting America's donors make acquainted giving decisions when they part with their hard-earned dollars by writing a ascertain to charity. In the past couple of years, however, more and more donors are trying to help themselves, and help others, by pledging their utilised automobiles to charity. This has become a massive enterprise. In the year 2000, almost ¾'s of a million people took a vehicle donation deduction on their federal levy comes back, thusly lowering their levies by over $650 million.

As America's vehicle donation system is actually construed, it is very simple for donors to benefit substantially by pledging their cars, albeit with a little risk. By following these 10 Charity Navigator Tips For Charitable Auto Donations, you can minimize that risk, and maximize the amount that really gets to benevolent society.

1. Find a Charity That Directly acknowledges vehicle Donations

If at all likely, avoid the for-profit intermediary associations that advocate so pervasively to handle your vehicle donations. When you work with one of these organizations, they keep the huge most of the dollars created from your donation. Even the most reputable of the bureaus that handle these transactions keep almost 50% of the car's value for their problems (other, less scrupulous entities hold 90%, or even more). If you can find a charity that manages the transaction themselves, they can hold 100% of their profits. It's possible that the benevolent societies you already support have a car-donation program that you don't understand about. ascertain with them first.

2. If Your Charity Doesn't Accept vehicles, Take the Time to Find a Charity That Does, and Still Does Work You esteem

Remember that you're still making a charitable donation, and don't simply give your automobile away to any benevolent society, just because they're a charity. Do a little study, and find a high-performing charity that does the kind of work you like, in the region you wish to goal, and does that work well.

3. If It sprints, propel the vehicle to the Charity

Worthy benevolent societies are going to have to pay somebody else to handle a pick-up or a tow. This is yet another cost that cuts into the amount that gets to that organization's programs. If you can get the car to them yourself, do it.

4. If You Have to Use a Intermediary bureau, Research the Percentage that Gets to Charity

The IRS does not require the vehicle donation agencies to contribute a set allowance of the auto's proceeds to the intended charities; that allowance is negotiated between the benevolent societies and the handlers. Try to find an bureau that maximizes that allowance, and call the charity to confirm that number before you give. The charities are reluctant to admonish the middlemen, because they don't want to misplace the dollars they do receive, but state advocate generals are beginning to enquire and even prosecute these for-profit middlemen, for retaining themselves out as charities and misleading the public on the amount that is really reaching charitable causes.

5. Make certain Your proposed association is a 501 (c) (3)

While many associations can claim non-profit rank, donations to 501 (c) (4) organizations are usually not tax-deductible. These are political associations with consent to petition our government; like Disabled American Veterans or the nationwide gun Association. Make certain your intended recipient has 501 (c) (3) public charity status.

6. Transfer the vehicle rightly to the Charity

Some benevolent societies will inquire you to depart the allotment of ownership space on the charity donation papers bare, so they don't have to re-title the auto. If your charity inquires this of you, find another charity. If you don't formally sign your vehicle over to the designated nonprofit, you will be held responsible for any parking tickets that are subsequently acquired, or liable if it's used in a misdeed. recall, the charity you give the car to will likely not use your car to consign meals to the needy, but will easily deal it as quickly as likely. When someone buys it from them at auction and doesn't hassle to list that vehicle, it's still yours in the eyes of the regulation.

7. Value Your Car Correctly

Due to the expansion of car donations, the IRS became increasingly worried about how taxpayers treasured the vehicles they pledged to benevolent society. Over the last couple of years, the agency paced up their audits in this locality and started to advocate for changes to the regulations that govern such deductions. With the passage of the American occupations Creation proceed of 2004, those alterations have come. beginning with your 2005 levy come back, you will no longer be adept to deduct the released fair market value of vehicles worth more than $500. Under the new rules, your deduction will be very resolute once your car is traded and the charity drives you a acknowledgement indicating the accurate allowance your car garnered at auction.

8. entire Your Paperwork

If your vehicle is worth more than $500, you must entire IRS pattern 8283 and adhere it to your yearly taxes.

9. Use equitable Market worth (FMV) for the vehicle

There are some exceptions which permit you to use the Kelley Blue publication or a NADA guide, but you must use the FMV, not easily the largest worth listed for the year and make of your vehicle. Use the FMV when:

rather than of selling the vehicle, the charity holds and benefits it,
the charity makes improvements to the vehicle before selling it,
your vehicle is traded at a discounted price to a person with a low income,
or if the vehicle is worth less than $500.
And remember to always get a receipt when you donate the car. Again, the IRS is observing this area very nearly.

10. Take the Time to Get It Right

It is true that the large-scale victor in the vehicle donation game is usually the donor, and not the charity recipient. But if you take your time, disregard the fast and very simple television appeals, and find a reputable, high-performing charity that will make the most of your donation, we can all appear victorious.

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