Donating a car to charity is a decision that is made by over
one million Americans every year. It is a great way to help someone in need and
get a tax deduction for yourself, a win-win situation and a great way to
celebrate the holidays.
If you want to claim it as a tax deduction you will need to
have donated the vehicle by December 31st at the latest. It is not a
great idea to wait until the last minute, as you will want time to get the
title transferred and cancel your insurance.
If you are considering donating a car this year it is
important to make sure you cover all of the bases. Here are a few tips on how
to properly donate your vehicle:
Find a Good Charity
– You will want to deal with an approved charity that has been recognized by
the IRS as a 501 (c)(3). The IRS publishes A Donor's Guide to Vehicle
Donations, which can help you identify a proper charity. It is best to avoid middlemen, deal directly
with the charity. There are numerous for-profit companies that claim they will
help you donate your vehicle. Unfortunately they end up keeping between 50 and
90 percent of the money.
Contact the Charity
Directly – Call the charity and ask them what they intend to do with the
car. Will it be resold for cash or given to a needy family? In some cases they
may keep it as a vehicle for the charity organization.
What they end up doing with it will affect your tax
deduction. If they resell the vehicle, you can only deduct the amount the car
sells for which may be less than the fair market value of the car. If on the other hand they keep it or give it
to a needy family you can deduct the full fair market value. Be sure to get a
receipt from the charity detailing the exact amount the charity valued the
vehicle at or sold it for, the IRS will require proper documentation.
Transfer it Right
– In order to maximize the benefit to the charity deliver the car yourself.
This way they do not have to pay for a transporter. Be sure that you have paid
all parking tickets so the title is clean when you transfer ownership. Transfer
the title and make sure that you keep a detailed paper trail. You will need
proof of the donation as well as a copy of the title transfer.
Cancel Your Insurance
– When you have delivered the vehicle and transferred the title be sure to call
and cancel your insurance. In most
states the DMV will issue a Notice of Transfer of Title which releases you from
liability and can be used to notify your insurer that you have donated the
vehicle and your insurance should be cancelled.
Be Detailed – Keeping
track of the proper paperwork and filing the correct forms with the IRS is key
to a successful donation so make sure you keep copies of all paperwork and
discuss with your accountant the proper forms to file with the IRS.
Donating a vehicle to charity can be a great way
to celebrate the holidays. You get to take a tax deduction while helping out
your favorite charity. Donating a vehicle is more complicated than a simple
cash donation so make sure you follow these tips and keep detailed records.