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- Donating your car this season can not only help someone in need but also get you a tax deduction.
- Much like selling your car, donating a car requires research and paperwork.
- Ensure that the charity is a 501(c)(3) if you intend to claim a tax deduction after your donation.
December is not only the season of giving but also National Car Donation Month. This makes it the perfect time to consider using your unwanted used vehicle for good. Charities may use your vehicle to transport food to those in need, sell it to a community member at a discounted price or auction it and use the profit. No matter the use, you can benefit from a tax deduction that varies based on the vehicle’s value.
How to donate a car
Donating your vehicle takes more forethought than donating clothes or furniture. Consider the following steps if you have agreed to hand off your car keys for charitable uses.
1. Find a charity in your area
The first step in your donation process is to set out on some research to find a nonprofit organization that takes vehicle donations. Look for organizations with a 501(c)(3) categorization to ensure you can get the tax deduction. These charities must also make their financials publicly available so you and watchdogs like Charity Navigator can check that their spending supports their mission.
If the thought of research overwhelms you, Charitable Adult Rides & Services is a 501(c)(3) organization that can match you with a charity in your area.
2. Transfer vehicle ownership
Like selling a vehicle privately or to a dealership, you must transfer the vehicle ownership by handling the appropriate paperwork, typically a signed and notarized vehicle title. If a charity requests that you leave the assignment of vehicle ownership blank when filling out the charity donation papers, do not follow through with the donation. This would keep the vehicle in your name, leaving you liable for any future legal issues related to the car.
3. Get a written acknowledgment from the charity
If you plan on claiming a deduction on your taxes, you’ll need documentation from the charity that proves the donation occurred. If you are claiming a charitable tax deduction of $250 or more, you must get a written acknowledgment in the form of a receipt directly from the charity. The IRS outlines what information this written acknowledgment should include.
Vehicle donation tax deduction
You can deduct charitable donations if you itemize deductions on Schedule A of Form 1040. However, the IRS will only know about your vehicle donation if you complete the proper paperwork. More importantly, you want to avoid dealing with an IRS audit.
Generally, you can only claim a tax deduction equal to the charity’s gross proceeds for selling the car. You’ll find this amount in the written acknowledgment the charity sends you.
However, according to Charity Navigator, if one of the following exceptions applies, you may claim an amount equal to the vehicle’s fair market value (FMV) instead:
- The charity keeps the vehicle rather than selling it
- The charity fixes the car before selling it
- The vehicle is sold to a person in need at a discounted price
- The car is worth less than $500
The IRS suggests finding your vehicle’s FMV by finding recent private sales listings for vehicles of the same make, model, year, trim and condition as yours.
Different paperwork and filing requirements apply depending on the amount of the deduction you are claiming.
- You are claiming between $250 and $500. You must receive a written acknowledgment from the charity; keep it for your records in case of an audit.
- You are claiming between $501 and $5,000. You must fill out section A of IRS form 8283 when filing your taxes. You must also attach the written acknowledgment from the charity.
- You are claiming more than $5,001. You must attach the written acknowledgment from the charity and file Section B of IRS Form 8283. If you are claiming this amount based on the vehicle’s FMV rather than gross proceeds from the vehicle’s sale, you must have the vehicle appraised by a qualified appraiser.
Alternatives to donating your vehicle
If you cannot find a good fit for the vehicle donation or are looking for a different route, consider other options to get rid of your vehicle.
- Trade it in. If you still need a ride, trading your old car in can help you save money on your new purchase while handling your old set of wheels.
- Sell it privately. To avoid the dealership and potentially make more money, you can sell your vehicle on your own on sites like Facebook Marketplace or Craigslist. If you still want to make a donation, you can send part or all of the proceeds to a charity.
- Contact mechanics. If your vehicle is in extremely poor condition, try asking independent mechanics or repair shops in your area if they would be interested in buying your car and using it for parts.
Be wary of for-profit vehicle donation programs
Not all charities accept vehicles; even more importantly, not all donations will go directly to those in need. It is best to avoid for-profit organizations that serve as intermediaries between you and the charity. They typically keep a cut of the proceeds from your car’s sale to cover their overhead, meaning your chosen cause gets less cash.
Instead, work with an organization that handles all aspects of donating to ensure all proceeds go to someone in need. Once you find an appropriate charity to work with, get your paperwork to avoid the risk of an audit.