Is donating a car to charity for a tax deduction worth it? If you own a Junker, chances are it won’t fetch much of a deduction. However, if you have a vehicle that could be of great use to the organization, then it could be worth it. Here we are going to discuss a few reasons to donate your car to a charity.
If you own a vehicle that’s in decent condition, by donating it, you’ll:
Give the organization a car to use. As long as your vehicle is in working condition, many charities will be more than willing to make good use of it. There are many tasks that they can use it for including taking people to the hospital, delivering meals to the seniors and anything else that furthers their goals. Some of the best options for charities that could use donated vehicles for their tasks include Goodwill, the Salvation Army, and the United Way. Locally, you can opt for vocational schools and community colleges as their educational programs often need cars for training programs.
You will be helping a charity whose cause you believe in. This certainly sounds obvious, but it is true. When donating, chances are you believe in the charity cause.
Avoid the hassle of selling the vehicle yourself. We all know that selling a vehicle is not always easy, especially when dealing with older models. By donating, you won’t have to market the car or deal with calls, emails and showing the car to potential buyers.
You will get a tax write off. The tax deduction rules might be strict since the American Jobs Creation Act of 2004 was implemented, but a tax deduction close to fair market value is still possible. If the donation you make valued above $500 and the organization sells it, you should get a written notice stating that the car was sold in an arms-length sale between parties that are unrelated. The notice should ideally state the gross proceeds of the transaction.
On the other hand, if the charity decides to use the vehicle for its operation, you’ll get a written certification of its intended purpose and planned time of use. The organization shouldn’t exchange or sell the car before the intended time of use. If it is worth more than $5,000, you will also get an independent appraisal stating that it is worth over this amount. If your vehicle is worth over $500, you’ll need to file the IRS form 8283 and include it in your returns. If it’s worth over $5,000, it’s a good idea to include the charity’s certification and independent appraisal to the Form 8283.
Get rid of a vehicle that doesn’t have a proper title. Some organizations also take vehicles for which you can’t find the title. They might only be able to sell it for the spare parts, which reduces the value of your tax deduction, but it’s better than incurring the expense of replacing the title for a vehicle you barely use.
Free Pick up. Almost every charity that accepts vehicles will collect and tow them for free. However, it’s important to keep in mind that they will deduct this expense from the vehicle’s value, thus reducing your deduction. If the towing amounts to a substantial percentage of the vehicle’s worth, it is always a good idea to drive it in yourself.
A Few Things to Keep In Mind:
Non-cash donations are notorious for IRS audits and so, after making a generous donation, ensure you carefully document it and keep the documents in your tax file for that particular year in case your tax preparer or accountant requires it. Ideally, it is important to familiarize yourself with the Internal Revenue Service’s publication – A Donor’s Guide to Vehicle Donation’. This will ensure you are aware of all the rules.
Also, ensure the organization you intend to donate to is qualified and reputable. The IRS is an excellent resource as it lists all the qualified organizations on their website.
Donating your vehicle to charity can be a good idea as it’s usually a win-win for both parties, provided you meet the provisions of the 2004 Act. Bear in mind that the most beneficial donation is a vehicle that can be used by the organization (if transportation for the underprivileged is part of their mission) or sold directly to an individual who will use it. It is only then that you can take a figure near the vehicle’s fair market value.
I hope that this guide has been helpful in things you can expect when donating a car to charity and a few reasons to do so.