Nowadays, car donation is been one of the popular way in US to get a tax deduction. In the year 2000 almost 800.000 citizens of US has donate their cars to charity and get almost 660million dollar of tax deduction! It’s a win-win solution. You donate your car to a charity organization, the organization sells it and gets funds for their program, and you get a tax deduction.
If you have the big interest in getting tax deduction by donating a car then I suggest you to read through this guide to get a better picture about the whole process you need to take on how to donate a car, where to donate a car and what advantage you will get. Consider this car donation guide only as a handbook. I will always recommend you to find a tax professional or someone who have experience in donating a car before you take any real action. If you cannot find one, this guide is more than enough to boost your car donation knowledge.
Car donation process – How to donate a car
Before going more detail with the car donation guide, I am going to give you a quick brief on how to donate a car and what process you will face in the process of donating your car. In general you will have to face 3 phases which is getting a charity, give car donation to the charity, and get your reward. But in this guide I will break it down to 8 detail step that you should follow carefully to make a legit car donation.
To cheer you up, most of the charities have a very simple and easy process that won’t make your head explode. So don’t worry. Those charities will be very happy to help you through all the car donation process. Just call them and they will arrange everything until you get your tax deduction like in this picture:
Check all this official resources for your legal guide to donate your car.
Form 1040, U.S. Individual Income Tax Return
Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes
Form 8282, Donee Information Return
Form 8283, Noncash Charitable Contributions
Publication 526, Charitable Contributions
Publication 557, Tax-Exempt Status for Your Organization
Publication 561, Determining the Value of Donated Property
Publication 1771, Charitable Contributions – Substantiation and Disclosure Requirements
Publication 4302, A Charity’s Guide to Vehicle Donations
You can read all of this document yourself or skip it and go through our car donation guide that we already compile for on how to donate a car.
Car donation guide – How to Donate a Car
Everybody wants a tax deduction by donating their car, but it’s not that easy since the Internal Revenue Service (IRS) which responsible to give you the tax deduction has getting stricter on this matter. Even though it’s not easy, it’s not that hard either. If you follow this car donation guide carefully and apply it, you will find it easier. Ok, here is how to donate a car:
1. Find a dedicated charity organization for car donation
In this phase you have to be a little careful since many car donation organizations out there are profit type organizations that keep almost 50% of the car value to themselves. Because car donation is a really good business where huge dollar can be earn with a charity mask. But they are legal by the IRS. Its fine if your intention is only to get a tax deduction and don’t really care where they take your donation to.
If it possible; find a pure charity organization that use your fund 100% for charity purpose. Check the charity that you already support, they might have a car donation program that you didn’t know before. If they don’t have a car donation program than look for one that does. With a little research it’s not difficult to get a good charity in your area. Don’t worry, there are many charities that except car donation across US. You can find where to donate a car in your region in the sidebar.
2. Get your car to the charity
A good charity will charge you for a pickup since they keep the fund 100% for their charity program. So if your car can still run, it’s better to take it yourself to the charity. But it doesn’t mean that a charity that offers a free pickup is bad, at least you have to know that they will cut some of the fund from our car for the pickup and other operational cost.
3. Find out the charity percentage of a car donation agency if you use one.
Although I told you to stay off a profit car donation agency, it still fine to use them since the IRS acknowledge them as legal and doesn’t determine how many percentage the agency should give to the charity. The agency is acting as an intermediary for the donor and the charity.
You should ask about their percentage and choose a car donation agency that gives the most percentage of funds to the charity. It’s only to make sure you deliver charity at the maximum amount you can give.
Why you should avoid the pro profit is because they don’t have a good intention in charity and only chasing the profit, it’s also the reason why many pro profit agencies are now being investigated and even prosecute by the state attorney general because they make the charity as their goldmine to earn many dollar and mislead the public.
4. Only donate your car with an Organization that have is a 501 (c) (3) public charity status
Your intention for car donation is the tax deduction so you have to make sure you donate your car to a charity organization that has 501 (c) (3) public charity status. There are many other organizations that claim as a nonprofit charity that accept car donation but will not get your tax deducted because they hold a 501 (c) (4) status. So make sure you will get your tax deduction, check and recheck again.
5. Sign your charity donation paper properly
This is important; you would never want to have any legal issues in the future just because you didn’t sign your car donation paper properly. Some charity will make you leave the assignment of ownership blank on the charity donation paper. This is wrong! You should sign all the space in the paper correctly so you won’t have trouble in the future just because the car is still yours in the eye of the law. Don’t take it lightly, you might have to pay the parking ticket or take responsible because the car is used in a crime.
6. Value Your Car Correctly
The car donation is growing very fast today which makes IRS really concern on how the donor values their car for donation. It is easy to find out what is the value for your car. Go to a used car market and find the same model and year of your car, or you can find your car value by reading a used car ads in a newspaper. Read “Publication 561, Determining the Value of Donated Property” for a better knowledge on this matter.
One thing you should note is, to determine how many and what tax deduction system you will get, there only 2 categories which is below $500 and above $500.
7. Get all your paper works done
Don’t let any document pass you. You have to make sure all the paper works are done. Make sure you complete the IRS form 8283 if your car is worth more than $500. Last is to make sure you attach your yearly tax with your car donation paper.
8. Use the Fair Market Value (FMV) if you have it.
I told you before about 2 categories of pricing which determine how many and what tax deduction system you will get. In short, if your car worth more than $500 you will have to wait until the auction to get your tax deduction. If your car is worth less than $500 you will get a direct tax deduction. There is some exception case where you can get a direct tax deduction called Fair Market Value, You can get the FMV when:
- The charity use your car instead selling it
- The car gets improvement by the charity before selling it.
- A low income person buy your car at a discounted price
Make sure you have all the receipt for donating your car process. This is because the IRS is always checking this area to make sure all are legit.
How many tax deduction I will get from donating my car?
After reading my car donation guide I bet you are still wondering how much tax deduction you will get from the whole process you will be through. The easiest answer is you will get your tax deduct as much as the amount as the gross proceeds from the sale of the car. But it still depend on the charity does with your car and you can know it by reading your written acknowledgement you received from the charity.
As I mention above, there are 2 categories of car value that will determine the amount and the process of your tax deduction which is over $500 and below $500. This mean you have to make sure you read “Publication 561, Determining the Value of Donated Property” properly to determine what category is your car in to and how many potential amount of car deduction you will get. Let’s get more detail in to it with some example:
Car donation worth over $500
If your car is worth more than $500 you will have to wait until the car auction or selling process done before you know how much tax deduction you will get although you already have determine the value of the car. Here are 2 examples:
- If your fair market value is $3000 when you donate your car, and then the charity sold your car for $2500 than you will get $2500 of tax deduction
- However if the charity decide to use your car for their operational, you can claim your FMV and get a direct $3000 tax deduction
Car donation worth less than $500
If your car is worth less than $500 you will get a direct tax deduction which calls a fair market value. You don’t have to wait until the auction is done. Here are 2 examples:
- If your car fair market value is $400 you still be able to claim your tax deduction up to $500
- However if the charity decide to use your car for their operational you can also get a tax deduction up to $500
Written Acknowledgment from the Charity
Before you claim your tax deduction, you should pay a close intention to your written acknowledgement document. There are many type of this document depend on the charity, but you have to make sure the document have this standard information:
- Your name and your Tax ID number.
- The vehicle identification or VIN must be on the document
- The date in which you made the car donation
- A statement that no goods or services were received from the charity as a result of your car donation; or; a description of the goods or services provided form the charity as a result of your donation plus an honest estimate of value, if any; or; a statement that any benefits received by you for your donation were strictly intangible
Many charities usually already make all the car donation documents done for you. You only need to check and verified the information.
The charity must give the written acknowledgement to you within 30 days after your car donation process. The charity can use Form 1098-C as their form of acknowledgement or they can also provide their own form.
Now find where to donate a car and get your car to charity!
Now after you read all the process how to donate a car and the benefits you get from donating your car to charity, it is time for you to make a real action and find charities or car donation agencies in your region. You can find many car donation charities and agencies across the 50 state by browsing in the internet. Or you can check your nearby charity whether they have a car donation program or not.
But i don’t have any clue where to donate a car in my region!
Don’t worry we have gone to all the trouble for you. You can find out where to donate a car in your region from our page in the side bar. Good luck!