It may sound like the easiest thing in the world to donate your car to a charity and earn a tax deduction at the same time. It seems like a win-win situation; the charity benefits from the donation of a car and you get the tax deduction. Just pause for a moment, it can’t really be that simple. You have to go about it the correct way to be eligible for the tax deduction and gaining the satisfaction of knowing that you have benefitted a worthwhile cause.
Cut Out the Middleman When Donating Your Car to Charity
There are many ‘for profit’ organizations that use an aggressive advertising strategy, offering help in the donation of a car to charity. They claim you will be totally free of all hassles. What they do not tell you is that up to 90% of the value of the car is retained by them and only the balance will actually go to the charity. It is best to contact the charity directly and find out if they will accept the car for donation.
Ensure the Charity Will Accept the Donation of a Car
Some charities are unable to accept such donations. By using websites such as Charity Navigator and Better Business Bureau, you can find out the details of charities who accept cars as donations. For you to claim the tax deduction, the charity must have IRS 501(c)(3) approval. It is easy to check this out by visiting the IRS website. Many places of religious worship qualify, but do take the trouble to check first.
Analyze if it Worth Donating Your Car to Charity
If you are absolutely pressed for time, you may want to use an intermediary organization. If you intend using these services, ask them how much of the value of the car goes to the charity. If they pay the charity only a fixed value of $100 for the car, notwithstanding the actual value; or they pay flat fees of $2000 a month, then your donation may not fall under the deductible category.
Ensure the Transfer of the Car is Complete
Ensure that the donated car is re-titled to the charity. Report the donation of a car to the Department of Motor Vehicles or the licensing authority. Under no circumstances should you leave the ownership space blank on the charity donation papers. If the vehicle isn’t properly transferred, you are legally liable for all violations.
Take Steps to Satisfy the IRS When You Donate Your Car to Charity
If the value of the donated car is worth more than $500, the IRS may not accept your estimated value of the car for the purpose of deduction. Since most charities sell the car and use the proceeds, get a receipt as to how much they sold it for. If the charity uses the car for charitable purposes and if the car is worth less than $500, you can use fair market value, provided you can justify it.
Make sure to keep the paper trail of the donation of a car intact, as the IRS may ask you for it. In case the value of the donated car was more than $500, you will have to attach IRS Form 8283 with your tax return. If it is worth more than $5000, you may have to get an outside appraisal done, along with proof of donation and title change.
You can feel happy you have donated for a good cause. Be diligent and ensure all necessary paper work is completed. By being diligent, you can ensure you get the highest possible deduction and at the same time comply with all IRS regulations.
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