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Some organizations may try to pose illegally as charitable organizations to get your car donation. Charities commonly are nonprofit education, religious and charitable organizations. They are registered as 501(c)3 organizations. Churches, colleges, agencies serving the needy may be charities.
Many also offer vehicle donation programs. To learn if a charity is registered properly, you can check IRS Publication 78. An easier way is to ask to see the charity's documents showing its tax-exempt status. Many states also require charities to register with state charity regulators, the state Attorney General, or the Secretary of State. These offices are a resource for people who seek to donate a car but want to verify the status of the charity.
With all the new rules for car donations, the IRS has published a handy free guide for donors.
"The Donor's Guide to Car Donations" (Publication 4303) takes donors step by step through the process of donating vehicles to charity. The guide defines the kinds of vehicles accepted -- cars, trucks, RVs, campers, boat, motorcyles and airplanes. It also gives advice and discloses rules for choosing qualified charities. The guide informs taxpayers on how to calculate their tax deductions, and which forms they need to fill out to claim them. The guide helps with recordkeeping, and offers advice on how to avoid pitfalls when you donate a car.
The charity or car donation charity should assume all costs associated with the donation. If they do not, conduct further investigations into their business practices and reputation. Do note, however, that costs associated with obtaining a duplicate title or transferring the plates from your donated vehicle, and any insurance you need until the donation is complete, remains the donor's responsibility.
While your interests may lie primarily in disposing of an unwanted vehicle and helping the needy, you may also have specific intentions for how your donation will be used. If you know what organization you wish to benefit, make sure that organization does accept vehicle donations directly, or participates in a vehicle donation program. Also, find out which car donation program(s) with which it works. When you donate your vehicle, be sure to specify the charity to which you want the vehicle or proceeds thereof to be donated
Organizations usually sell the vehicles and use the proceeds to fund programs. Others use cars as teaching tools in educational programs and to provide transportation to low income families or dislocated workers. If you have a preference for how your vehicle will be used, it you should ask the car donation service or the charity these questions. Also, according to new IRS guidelines for vehicle donations, the documentation that you will need from the charity will be different depending on how the organization will use the vehicle.
Many car donation services take only a small fee for the expense of picking up and disposing of the vehicle. Some intermediaries, such as auction houses and used car dealerships, negotiate terms that leave the charity a tiny percentage of each donation. Find out these particulars, and weigh the pros and cons of each option. Remember that in order to be considered a charitable gift by the IRS, used cars must be given to the charity or a valid agent of the charity. Keep in mind that some for-profit companies also advertise for automobile donations and donations to these companies are not tax-deductible.
Vehicle donations programs continue to be a popular way for Americans to give to charities, even with tighter rules for claiming deductions.
If you plan to claim at least $250 but not more than $500 as the deduction for your car donation, the charity needs to provide you with an acknowledgement for your records.
The acknowledgement must contain:
* Charity's name;
* Vehicle description.
It also must include one of the following statements:
* No goods or services were provided in return by the charity;
* Description and estimate of services provided by the charity for the donations;
* Goods and services provided by the charity were of "intangible religious benefits."
For-profit companies hired by charities provide convenient services to encourage Americans to donate their cars, campers, trucks, motorcycles and RVs.
But the donor still bears responsibility for transferring the title of ownership.
If the donor is not careful, he or she can face liability problems down the road if ownership is not legally changed. The transfer usually requires the donor to file a form with the state motor vehicle department stating the car was donated.
Your responsibilities as a donor should generally be limited to determining the fair market value of the vehicle you are donating, obtaining and presenting the title, and then transferring liability. You will also want to make sure you remove personal belongings from the vehicle. If the car donation program asks you to do more than this or to undertake costs, do more investigation about the program and be sure you understand the guidelines and standards in your state.
Car donation programs want your business. Many are willing to provide donors with a lot of help to make the process easy. Nationwise vehicle donation programs often have toll free numbers and representatives available every day to field queries and some promise to help donors with the process of transferring titles and other paperwork.
Others pledge to try first to send your car donation to a charity that needs the vehicle for its programs and services. This type of use entitles the donor to claim full value on the car at tax time. It benefits the donor to read carefully the promises of the vehicle donation programs to get the best help and assistance.
The easiest way to learn about vehicle donation programs is through advertisements.
A federal report showed that most Americans who donate used vehicles first learned about car donations through promotions by charities.
Generally, people can call an advertised number. They will reach the charity or a fundraiser working on behalf of the charity.
Potential donors should be prepared to answer detailed questions about the vehicle, including make, model, year and condition.
Often the charity or fundraiser will go to the donor's house or business to collect the auto donation.
Several years ago, car donation services proliferated, and skepticism about many of these outfits grew – and was somewhat warranted. Using these services, you would donate a car and could claim a deduction for the fair-market value of the car. As a donor, you were responsible for determining that value. The car would be picked-up or towed and would most often be sold by a car processor on a lot or through auctions, and most charities would pay the processor for these services. The proceeds from the sale that remained after processing costs (often very little) would then support the charity's cause. Thanks to an IRS study and new guidelines, car donations are now more regulated, and it is easier for donors to determine the market value of their car, and to find out how much of that will benefit the charity to which they are donating. Therefore, if you follow general guidelines and just do a little research, you can rest assured that your car donation is benefiting your cause, and will be tax deductible at a fair rate.
Several years ago, the General Accounting Office reported that many charities, using third party vendors in their car donation programs, received as little as 5% of the amount claimed as a deduction on the donor's tax return. While the 2005 changes to IRS guidelines for vehicle donations aims to ensure that charities derive more benefit from donations, it is still wise to investigate your car donation options to be sure the greatest amount of benefit goes to your chosen charity. Be just as informed about your automobile donation as you would be with a cash donation: if the charity does not accept your vehicle directly, ask about the dollar amount or percentage received by the charity.
Car donations are a lot easier for many donors, since new tax laws went into effect in 2005. No longer do taxpayers need to figure out on their own the fair market value of their auto donations.
Most often, when you donate a car that's worth more than $500, you will claim as your tax write-off the amount the car is sold for by the charity.
But there are exceptions. People who donate a car valued at more than $5,000, for example, fall in a special category. These donors may need a certified appraisal shortly before making the car donation to verify its value.
The IRS requires the appraisal in cases where the tax deduction is not the amount of the gross proceeds if the car is resold. The charity can explain if your car donation falls in this category. It's also a good idea to contact an accountant.
|Sheri Ann Richerson|