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.
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