Ask Questions Before Making Car Donations

Many major charities accept car donations, letting people donate used vehicles for a good cause and get a tax write-off in return. But the process is not as simple as making a phone call, dropping off your unwanted vehicle and reaping the benefits of a tax write-off.
First, learn the charity's mission. If you have a specific intent in mind for the gift, let the charity know. If it cannot meet your goal, you may want to consider other ogranizations. Charities may use car donations in their charitable work. For example, a car donation may directly help needy people with transportation. Most likely, the vehicles will be sold to raise money for the charity's programs or general fund. If the vehicles are sold, find out which programs the revenues fund. Perhaps the money can go to a particular charitable service or cause you support.
Finally, ask if the charity oversees car donations or pays a firm to do it. If a for-profit company handles the vehicle donations, find out how much money the charity will receive from the sale and how much will go to the for-profit company.
This kind of information may help you direct your car donation to the charity and cause that match your interests and goals.

IRS Helps Car Donors Understand Laws

When donating cars to charities for tax deductions, it is a wise idea to consult an accountant or contact the IRS.
New laws that took effect in 2005 require detailed documentation to verify the value of the donated vehicle, the transfer of the vehicle to the charity, and how the charity uses the automobile donation.
The IRS publishes references to help donors understand the new laws. They include:
-- Publication 526, "Charitable Contributions";
-- Publication 561, "Determining the Value of Donated Property."
Contact your local IRS office to get free copies, or consult with an accountant.

Americans Give and Get Back With Car Donations

Why donate your car to a charity? The top three reasons for Americans are: the satisfaction of giving to a good cause; the benefits of a tax write-off; the ability to get rid of an unwanted vehicle.
According to a survey by the Wise Giving Alliance, donors expect that most of the money a charity receives for selling vehicle donations go to charitable works.
In reality, it may be a lot less, especially when a third party -- or a for-profit fundraiser -- handles car donations for the charity.

Tougher IRS Rules for Car Donations

Rules for making car donations have gotten tougher since 2005 for good reason.
Prior to 2005, there were increasing reports of abuse in the growing industry of car donation programs to benefit charities.
These abuses included donors taking tax write-offs for donated vehicles at inflated prices. There also were reports of companies and individuals posing as legitimate charities to personally gain from vehicle donations.
But new IRS rules make it harder for abusers to flout the system. It is now up to donors to make sure they are making car donations to registered charities. Some states offer free guides or help to donors who want to check the status of charities and car donation programs.
When donating cars valued at $500 or less, you cannot claim more than the fair market value, or the sales price found in a used car pricing guide. The car's condition and mileage needs to be factored in as well.
For cars valued at more than $500, your tax write-off must be the amount that the charity got reselling the vehicle.
Donors are required to document with the IRS the transfer of the vehicle to a registered charity. Check with an accountant for the required forms. Many of the forms are available online.

Charities Have Their Own Costs in Car Donations

Revenues from vehicle donations is a vital resource for charities. But the proceeds a charity gets from an automobile donation often is less than what the donor expects.
Understand there are hidden costs that charities bear in offering automobile donation programs. The knowledge can help you in your decision to donate.
Some charities enlist the services of an auction house to sell the vehicle donations for wholesale prices. The prices the charities get may not be what donors could have received by selling the vehicles through classified ads. Also, the charity may incur costs for processing the vehicle.
These costs reduce the amount of money that is raised by car donations for charitable works.

Keep Records When Donating Cars

Donating cars is an excellent way to help a favorite charity while getting rid of used vehicles. Many donors also use car donations for tax deductions.
It is important to carefully document your car donation, in case the charity, the IRS or your accountant later has questions.
Your personal records should include:
(1) The charity's name and address;
(2) The date and place you made the automobile donation;
(3) A description of the car donation, including year, make, model and condition. Include a photo.
(4) The value you placed on the car, which should not be more than the fair market value of the car. State how you calculated the value of the car donation. Include an appraisal, if the car is worth more than $5,000.
(5) A history of your own purchase of the car. Was it a gift? Did you buy it?
(6) Copies of the title, registration and receipts from the charity. Receipts from the charity should include an acknowledgement when the vehicle is collected, and a statement of the amount received when the vehicle later is resold by the charity.

How Charities Use Car Donations

Find out how charities plan to use car donations. What the charity does with the automobile donation affects the tax deduction a donor can claim.
If the charity resells the vehicle, the donor can only deduct the amount received from the sale. If the charity uses the automobile donation for charitable work -- such as providing meals on wheels to shut-ins -- the donor may claim the fair market value of the vehicle.