Your old car can help a good cause --
and give you a tax deduction
By Andrea B. Abramowitz • Bankrate.com

June 14, 2000 -- Got your vacation planned but afraid the old jalopy won't get you there? With automakers revving up customer rebates and incentives this summer, maybe it's time to consider buying a new one.

But don't automatically trade in your old car. It might be worth more to you as a tax deduction.

Many people are familiar with donating clothing and household items to Goodwill and the Salvation Army. But did you know that a handful of organizations are waiting patiently for car donations? These groups will gladly let you unload a car you no longer want, giving you a hefty tax deduction.

Michelle Passoff of New York City eagerly donated her 1980 Honda Civic: "The cost of fixing it was greater than the value of the car."

After spotting an advertisement in the back of AAA Magazine for a charitable organization, she called their 800 number to donate her car. "They said that they break the car into different parts and sell the parts, and the money goes to children's charities."

Passoff claimed a $1,000 tax deduction on her return. "Donating a car is easier than getting rid of your Chinese food take-out cartons," she insists. She called a toll-free number and the organization came within two hours to pick it up.

Benefits of donating a car
Not only is it an easy process, but there are benefits that go along with donating your car:

• It's hassle-free; much easier than fixing, advertising and selling your car.
• Your tax deduction might be worth more than you'd receive by selling the car. Even a clunker is worth something.
• You don't need to pay someone to tow it or give it away to a salvage yard.
• It supports a worthy cause.

But watch out: not all organizations claiming to be charitable have been approved by the IRS as a nonprofit charity. You can deduct your car contribution only if you make it to a qualified organization.

So how do you know if the organization is qualified?

1. Ask the charity if the IRS has qualified it.
2. Read the charity's literature to ensure that it is fully recognized by the IRS.
3. Check IRS Publication 78, which lists most qualified organizations.

"Ask the organization to show you the letter from the IRS that gives them the tax-exempt status," says Art Wiederman, CPA and President/Owner of Wiederman and Associates in Tustin, Calif.

"Stick with traditional organizations that you're familiar with -- like the American Cancer Society or your church," advises John Hewitt, CEO and President of Liberty Tax Service, based in Virginia Beach, Va.

If you're considering donating to an organization that you're not familiar with, Hewitt suggests that you call them and find out what percentage of the money from the car is actually going toward the cause.

If you contribute your car to a qualified organization, the amount of your charitable contribution is generally the fair market value -- the price at which the car would change hands between a willing buyer and a willing seller -- at the time of the contribution.

Car's worth may surprise you
To figure out your car's fair market value, the Internal Revenue Service says you can use any widely used guidebook, including the National Automobile Dealers Association, the Kelley Blue Book or Edmunds.

When determining the value of your car for the IRS, consider the condition of your car and subtract the listed values for items that detract from your car's value. You'll need to show the IRS how you arrived at the value and that it was reasonable if you are questioned.

"Don't play pig -- don't claim $38,000 for your 1983 Dodge Dart. As long as you're within the blue book value, you're OK," says Wiederman.

Sounds enticing, huh? Now you probably want to know if you and your car are eligible to donate.

The rules are relatively simple:

1. You must have a title to the vehicle.
2. The title must be lien-free (leased cars aren't valid).

That's all -- it doesn't even matter whether or not your vehicle runs!

The donation process
In order for your car donation to qualify as a deduction on your taxes, you must transfer your title to the organization. The organization will probably ask you to mail it to them. As long as your title is postmarked by Dec. 31, you'll get the tax deduction for that year.

After you send in your title, the organization should contact you to arrange for your car's pickup -- which generally takes about a week. Remember to remove the license plates and other personal items before your car gets taken away. Approximately 45 days later, you should receive your tax receipt.

Itemize your deduction
If your primary motivation in donating a car is to gain a tax deduction, you'll need to itemize your deductions on your federal and state income tax returns.

Report your charitable contributions on Schedule A of Form 1040.

1. If your total deduction for all non-cash contributions is more than $500, you must complete Section A of Form 8283, and attach it to your Form 1040.

2. You must complete Schedule B of Form 8283 for each item or group of items for which you claim a deduction of more than $5,000. If your car is valued at more than $5,000, you'll need to get a qualified appraisal.

Now that you have information regarding the process of donating your car, you just need to figure out who you'd like to give it to.

A handful of qualified organizations have forms that you can fill out online, such as the ones listed in the table. This is only a small sampling of the hundreds of legitimate organizations that will happily accept car donations.

--Posted June 14, 2000