A charity that uses a donated vehicle for
transportation or hauling goods obviously benefits directly from such a
donation. However, in many cases donated cars will be sold en masse,
either by the charity itself or by a dealer to raise funds for the
charity.
In the case of a dealer, the charity generally receives a flat
fee per car, sometimes as little as $45 per car.
Listed below are tips for donors who would like to donate a car to charity. Beware that the donor's tax deductions for car donations may be limited to the price at which the charity sold the car.
- To receive the maximum tax deduction on your car
donation, and to receive the satisfaction that the full value of the car
benefits a charitable purpose, give it to a charity that will use the
vehicle in its operations or will give it to a person in need.
Otherwise, your tax deduction will not be based on the fair market
value, but will be limited to the amount of money the charity receives
from the sale of your car. If the charity you are donating to does sell
the vehicle, ask what percentage of the proceeds they receive. See Car Donations: Taking Taxpayers for a Ride for more.
- Ask if the charity accepts car donations directly,
without involving a third party. If possible, drive the vehicle to the
charity instead of using a towing or pickup service. This will allow the
charity to keep the full amount of any proceeds from selling the car.
- Make sure the charity is eligible to receive tax
deductible contributions. Ask for a copy for your records of the
organization’s IRS letter of determination which verifies its tax exempt
status.
- Be sure that you get a receipt from the charity for your car donation.
- Be aware that non-cash donations are one of the most
common triggers to an audit by the IRS, so you’ll want to document the
value of the car and keep records of it.
- If the car is worth more than $500, the donor must complete Section A of IRS Form 8283
and attach it to their tax return. Donors are required to file with
his/her tax return a written acknowledgement from the charity. If the
charity sells the car, the charity must provide the donor with a
certification that the car was sold at "arms length" between unrelated
parties and the sale price of the car within 30 days. In this case, the
donor's tax deductions will be limited to the total amount the charity
sold the car for. If the charity does not sell the car, it must provide
the donor with a receipt within 30 days of the contribution. The charity
may also be required to provide certification to the donor stating how
it plans to use or improve the car and stating that it promises not to
sell or transfer the car. Penalties are imposed on charities that
provide fraudulent acknowledgements to donors.
- If the car is worth $5,000 or more, an independent appraisal is necessary. The donor must also fill out Section B of IRS Form 8283. For cars worth less than $5,000, use the Kelley Blue Book, the Hearst Black Book, or a guide from the National Auto Dealers Association (NADA)
to determine the market value. Make sure you use the correct figure for
the date, mileage, and condition of your car. Picking the highest
figure for your car model and year without taking into account other
factors may not pass muster with the IRS.
- Take pictures of the car and save receipts for new tires or other upgrades to verify its value.
- Remember, it is the donor, not the charity, who is obligated to value the car and who will pay the penalties if an IRS challenge finds your figure inaccurate.