Five Things to Know Before You Donate Your Car

Thinking of donating your old rusty ride to charity for a handsome tax deduction? Proceed with care.  While gifting of used or broken cars to charities has become a favorite way for Americans to dispose of unwanted vehicles, there are certain things one should keep in mind before contacting a fitting organization to tow your car from blocking your driveway or garage. You can avoid the headache of selling or junking the car, help a charitable cause and lower your tax burden all at the same time.

Do you have a vehicle that you're no longer using?

If yes, a choice might be to donate it to a charity. In some situations, you may even get some money back. There are various charity foundations with different approaches. For example, the charity itself may use the car, sell it to a needy individual for a reduced price, auction it off for money or sell it to a salvage yard. In some cases, your vehicle doesn't even need to be in running condition for you to be able to donate it.

Most charity organizations are straightforward for donating a car, and you could do it in just a few steps. However, suppose you also want to claim a deduction on your taxes and get a little bit back yourself. In that case, the rules are different and quite challenging to understand.

How to donate a car

The most relaxed approach for donating your car is by contacting a charity and let them arrange everything. They will even pick up your vehicle at your front door, provide phone hotlines and websites with donation forms to make it as smooth as possible. Mostly, big charity organizations offer these services. However, you can also find specialized car donation organizations that handle all of the details and lets you choose the charity you'd like to support.

The second approach is a bit more work, but in the end, it generates more money to donate. You could directly sell the car and donate the money yourself. You may most likely be able to sell it yourself for a better price than the charity could get.

5 must-read tips to know before donating your car

1. Tax deductions: What to know before you donate your car

The most well-known benefit of donating your car is that you might be able to get a decent tax deduction. However, it's not as easy as it sounds as giving the car to a charity and then simply deduct its value from your taxable income. Remember, you need to meet specific criteria to deduct the donation from your taxes. You can find more info from the IRS's guide to vehicle donation.

2. List your deductions

Only if you itemize your taxes, you can claim a charitable deduction. Also, take into account the new tax law changes. Most people are better off claiming the standard deduction, so your car donation might not benefit you at all come tax time.

3. Donate to a charity that qualifies

For your donation to qualify as a tax deduction, you'll need to hand your car over to a registered 501(c)(3) organization or tax-exempt religious institution. You can verify the charity's eligibility by calling the IRS hotline at 1-877-829-5500 or visiting the IRS website.

4. Collect all the right documents

With these documents, you can think about receipts, contracts, any written acknowledgments, and a 1098-C Form (Contributions of Motor Vehicles, Boats, and Airplanes). It depends on your charity what kind of documents they provide. Make sure to keep all of the documents safe as you may need the information to file your taxes. You may even need to send the paper-document itself if you're deducting more than $500 from your taxes.

Be aware. When you donate a car worth more $5,000, and the charity doesn't plan to sell it, you'll need an official written appraisal at least 60 days before donating.

5. Fil in all the right tax forms

In most cases, charities sell their donated cars for money. If so, you can deduct the car's final selling price, which the charity will provide to you with a written acknowledgment or Form 1098-C.
You'll need to file the following documents with your tax return, depending on how much you can deduct:

$500 or less: Nothing in particular, but hang on to your records, just in case.
$501 to $5,000: File Form 1098-C or the written acknowledgment, plus Section A of Form 8283.
More than $5,000: File Form 1098-C or the written acknowledgment, plus Section B of Form 8283 and the written appraisal of the vehicle if the charity isn't selling it.

So, what to do?

It doesn't matter whether you qualify for tax deductions from a car donation or not; you can rest assured that charities always will be grateful for it. Even an old wreck or broken car might qualify as a donation since charities can sell it to the scrapyard. So it's a smart choice to consider donating your vehicle. Firstly, it's a great way to clear your yard, and secondly, you are helping people out at the same time. And finally, you can deduct your taxes. It's just a win-win-win scenario.

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Donald R.

Author for local newspapers and national magazines in the greater midwestern area, loves sailing with his wife Deb.

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