So, you’ve made the decision to buy that dream car. The only thing that stands in your way is the old jalopy sitting in the driveway. What do you do with that vehicle? You have choices: trade it in to the dealer or sell it yourself through the internet or classifieds. Wait, there is a third option that has captured the attention of may Americans in recent years: give the car to charity.
This sounds so simple, good-hearted and tax friendly. How can you go wrong with this? Well, there are ways. For instance, the radio, internet and newspapers all advertise charities that promise to deliver your car to needy people. Often, this is not the case. Not every car donation service is a non-profit charity. Some advertisements are placed by”for-profit” companies which are hired by charities to handle the car donation service. In this instance, donated cars are usually not given to needy individuals. The “for-profit”companies auction or sell the car and present the charity you thought you were supporting with only a percentage of the sale price. For the charities this works well, but if you were looking for a way to donate your car and get a tax break on the full value of the vehicle, this is not the best route to take.
According to new IRS rules put into place in January 2005, car donation is now a bit more tricky, and tax payers need to be aware of these changes. For instance, if your car has a fair market value of $5000, and the charity sells it for $1000, you can only deduct $1000. If the charity gives the car directly to a person in need, you could deduct the entire $5000. The lesson here is that you must know what the charity is going to do with your car before you hand over the keys. A few quick questions will save you a great deal of time and trouble.
Government agencies such as the Better Business Bureau Giving Alliance, post on their websites what donors should look for when deciding where to give their cars. According to Give.org the website for the BBB alliance, donors should do preliminary investigation before they make a donation.
Verify that the organization you are interested in donating to is registered with the IRS as a charity under section 501©) (3). You can find this list at public libraries or on the IRS website. You can also ask the organization for a copy of its tax exempt status determination letter. Beware of anyone who won’t supply this to you. One exception: churches are not required to file for tax exempt status, so they won’t have a determination letter. Your donations to them are still tax deductible.
1. Pick a charity that provides nationwide pick-up service for vehicles. These charities are larger, have more experience in vehicle donation and tend to be more efficient with paperwork and records.
2. Transfer the title of the car to the charity’s name and keep a copy of the record. This not only benefits you at tax time, but it protects you in case the vehicle is involved in a moving violation or traffic accident.
3. Photograph your car and keep guide value estimates of similar vehicles. You can get from the IRS Publication 561 which determines the value of donated property.
4. If the car is worth more than $5000, get an outside, written appraisal to verify to IRS the car’s value.
5. If you claim a car donation of $500 or more, you will have to complete and attach IRS Form 8283 with your tax return
Common sense is the key to car donation. One rule of thumb is to stick to charities that have been around for a while. Probably the most enduring of these is The Original Charity Cars at 1-800-Charity. Established in 1996, this organization is the model for the car donation programs. Be aware that not all vehicles are accepted by this organization as donations because all vehicles are given to struggling individuals. They are not auctioned or sold off. The cars are refurbished to ensure safety and reliability. 1-800-Charity gives title over to the individual who receives the car, but it maintains a lien on the vehicle for one year so the car cannot be sold. The recipients get a license plate, down payment for insurance, a roadside assistance membership and a service warranty. In return, they must prove employment within 30 days of receiving the car, and they must keep a job for the year that the lien is in place. This charity is truly organized to help people get back on their feet. You can call or check out their website www.800charitycars.org
If your car does not have monetary or sentimental value and you just want it off your driveway, you may not mind charities that want to sell or auction it off. For some vehicle owners, any tax deduction is worth more than the headache of selling an old car.
The lesson: look around at all your options. Giving away a car to charity can be a wonderful experience for both donor and recipient, but it can also be a tax headache if you don’t know the rules. They are not hard to learn, and they are available to you.
So, investigate your charity, give the old car away, and pat yourself on the back for doing a wonderful thing for those in need.
