Donate Your Car to Charity
Thousands of people donate cars to charity each year. These contributions are an important source of income for charities around the country. Of course, you can donate a car to any charity that accepts them, and if you don’t care about deducting the value of your car from your taxes, that’s all you have to do. However, the IRS allows individuals to deduct the value of their charitable donations from their income, including cars donated to charities. There are several conditions which apply, but they are easy enough for any donor to learn.
Deciding if Donating the Car is Right for You
- Determine your tax bracket. The amount you will save as a result of your deduction depends on your income tax bracket. Before you make a donation, you should determine which tax bracket you fall into.
- Imagine the car you donate is valued at $1,000. If your tax bracket is 10%, then the value of the deduction will only be $100. If your tax bracket is 15%, then the value of the deduction is $150.
- If you don't know which bracket you fall into, you can check at http://individual.troweprice.com/public/Retail/Planning-&-Research/Tax-Planning/Prepare-Your-Taxes/Tax-Rate-Schedules.
- Estimate the fair market value. The IRS only allows you to deduct the fair market value of the donated car. Since most charities will sell the donated car, you won’t know the actual market value until the charity sells it. However, before you make the decision to donate, get a good estimate of value beforehand.
- There are many car valuation services you can use. Kelley Blue Book and Edmunds are two of the oldest and most reputable, and they have calculators on their websites.
- When you estimate the value, the estimate must be for the same make, model, year, condition, and accessories package as the car you donate.
- Compare the estimated deduction to the standard deduction. In 2016, the standard deduction for a single person paying taxes in the US is $6,300, $9,300 for the head of household, and $12,600 for married couples filing jointly. If you don’t itemize, you can deduct this amount automatically. In order to make itemizing deductions worth it, your total deductions need to exceed this amount.
- Review your previous tax filings to determine the projected amount of deductions for the current year.
- Therefore, the fair market value of your car, coupled with your other itemized deductions, must exceed the standard deduction in order to see any financial benefit from the donation.
- Even if you aren't able to deduct the donation from your taxes, remember that there are other psychological and societal benefits involved with charitable donations.
- Keep in mind that you could give the auto directly to a needy family in lieu of a charity.
Choosing a Charity
- Choose a qualifying charity. Not all charitable contributions are tax deductible—the donation has to go to a qualifying charity or nonprofit. Usually, 501(c)3 charities and religious organizations will qualify.
- In order to double check, go to https://www.irs.gov/charities-non-profits/exempt-organizations-select-check to look at the IRS’ listing of exempt organizations. Remember though, churches are usually not listed in the directory.
- The only time a charitable organization won't be listed is if it a religious organization or a subsidiary of a larger charitable organization. In that case, if the larger organization is listed, you can be sure the subsidiary is as well.
- Make sure the charity accepts cars as donations. Not all charities accept cars as donations, so be sure to check before you drop your car off. If you can't find a charity you'd like to donate your car to, Car Angel uses car donations to fund a variety of projects, including literacy, children's welfare, and prison outreach. Learn more at https://www.carangel.com/programs.php.
- For an alternative, Car Donation Wizard takes care of a lot of the intervening steps for you. You just pick an affiliated charity, fill out a form, and schedule a pickup. Find out more at https://www.cardonationwizard.com/.
- Beware of scams. Although the IRS' listing of exempt organizations should be all you need to find a reputable charity, if you still have doubts, then ask to see the organization's 501(c)3 certification from the IRS, and their articles of incorporation and bylaws specifying that they accept cars as donations.
- You should also beware of charities with excessive administrative costs, which include salaries, offices, and office supplies. Charity Navigator, an independent nonprofit organization, actually evaluates charities for their financial health and levels of giving relative to donations. You can learn more at http://www.charitynavigator.org/.
- Make sure the person who accepts your donation is affiliated with the charity.
Completing the Donation
- Make the donation. Donate the car to the charity you chose. You can drop it off or ask them to pick it up.
- Make sure the title is signed over to the charity and not the person who picks up the car.
- Determine whether the charity will sell the car. The charity can either sell the car, give it away, or keep it for their own use. If the car is sold, the charity will give you a receipt, called Form 1098-C. If they don't sell it, you will not receive a 1098-C, but can still deduct the fair market value of the vehicle. The value stated on the 1098-C will depend on how the car is sold. For example, the charity might:
- Send the car to a salvage yard, or junk yard. This will result in the smallest deduction for you, but the quickest.
- Sell the car at auction. A car at auction usually won’t fetch as high of a sale price as a sale to an individual, but it will probably be more than what a salvage yard pays.
- Sell the car conventionally, which is rare. Usually this will result in the highest sale price.
- Deduct the actual fair market value. If the charity sells the car, you can only deduct what the car sells for—the amount on 1098-C—which usually won’t be quite as much as the full market value (Blue Book value). However, under the following circumstances, you can deduct the full market value:
- If the car is sold for less than $500, you can deduct $500.
- If the car is used by the charity, then you can deduct the full market value.
- If the car is donated directly to an individual, you can deduct the full market value.
- If the charity makes a “material improvement” to your car, like rebuilding the transmission or painting the car, you can deduct the full market value.
- Fill out the proper paperwork. If the value of the donation is more than $500, you’ll have to fill out Form 8283, Section A. Once you fill it out, it will be filed with your tax return. If the car is worth more than $5,000, then you’ll have to fill out Form 8283, Sections A and B. In addition, you need to include the Blue Book value of the car, records of any improvements, and pictures of the car.
- Consider an alternative. If you don’t think the charity will be able to sell it for the same price you could sell it for, consider selling it yourself and then donating the proceeds to the charity. That way, both the charity and you get the maximum value out of your donation.
- Even if you decide to sell the car yourself, you still need to research the charity to make sure it's legitimate.
- After you make the donation, make sure the charity gives you a written acknowledgement of your donation, which includes the name of the charity, date of the contribution, and the amount of the contribution. They must also provide this to you before the tax deadline. A bank record provided by the charity would also suffice.