Donating a car may come ahead as one of the best and most feasible ways to dispose off a car as you can give it off as it is without having to spend money and effort on fixing the issues in it. Car donation, not only brings the donor the satisfaction of having donated the car for a good cause, but also it brings them the benefit of getting a considerable amount of tax deduction. In fact, car donation has become a preferred way for the Americans to bring down their tax burden. However, before you donate a car to charity, don’t just give it away for the sake of giving it, but give it to the right and trustworthy organization which uses it for a good cause. It is important to know that there are plenty of scams out there, waiting to trap you into donating your car, without getting any of the benefits associated with car donation.
How To Donate A Car?
Car donation may seem to be a simple process, requiring you to just make a call and have your car picked up by the charity or its representative. On the other hand, you can drive the vehicle to the charity which you chose. The transportation of the car to the charity is not as important as choosing the right place to donate it. The IRS (Internal Revenue Service) therefore, recommends the donor to research the charitable organization first, with regard to the work it has done, and the purpose it has been established for. A donor who is willing to donate a car to charity has some responsibilities to take care of, which he has to do with utmost commitment. Though the primary purpose of car donation is getting tax benefit, the importance of social responsibility stands in its own place. The organization which is chosen by the car donor may be involved in social, religious or educational tasks, all charitable in mission.
How The Charity Uses The Car And How It Affects The Tax Deduction Received By The Donor?
When you donate a car to a charity, it can be used by the organization for transport of volunteers or supplies or they can sell it off with the proceeds to be used for the purpose of charity. Depending upon the way it is used by the organization, the tax deduction in lieu of the donated car is computed. When the charity receiving the car uses it for personal purposes, the tax deduction is computed on the basis of its fair market value. Fair market value, as the name suggests is the value which the buyer would be willing to pay and the seller would be willing to get for parting with the vehicle, if it is sold considering factors such as make, model and condition of the car. On the other hand, if the car is sold in the market, its price is used to determine the value of tax deduction. In some cases, the car is sold to a needy person at a lower rate; even then the computation of the tax deduction is done on the basis of its fair market value. Some charities employ dealers to sell the car on their behalf, which means that they have to give them a share in the amount of sales proceeds, influencing the tax deduction received by the donor. A donor must be aware of his rights and responsibilities while donating a car because the tax deduction received based on car donation is limited to the fair market value of the car or the price for which it is sold.
Tips For The Donor While Donating The Car To A Charity
A donor needs to be satisfied that his car is going to be used for a worthy purpose by an honest organization. At the same time, he is entitled to get the maximum amount of tax deduction on the car donation. For this purpose, certain tips which act in his favor. Listed below are some of them:
- Try to find a charity which is going to use the car for their personal use or give it to a needy purpose. This will ensure that the fair value of the car is used for determining the tax deduction on the car, which will work in the benefit of the donor. On the other hand, if the charity sells off the car, the donor must ask for the percentage of sale proceeds it gets, if an agency is employed to look after the sales transaction.
- It is better to find a charitable organization which does not involve a third party or agency to look into the donation process, as it can increase the administrative costs and lower the value of selling price of the car. In turn, the amount of tax deduction claimed by the donor is also likely to come down in the process.
- When you pick a charity for making the donation, ensure that it comes under the coverage of IRS 501 (c) (3). This will make you eligible to claim the deduction in tax under the norms of IRS.
- Documentation of the entire donation process is of utmost importance as non cash donations are more likely to come under the scrutiny of IRS. Therefore, when you donate your car, you must ask the respective charity to issue a proper receipt in return. The valuation of the car, in whichever way it is done, should also be properly documented.
- The change of title of the car should also be done in a proper manner so that you do not become liable for any unlawful or criminal act for which the car is used after you have donated it. In case the car is sold to someone by the charity, a certification of the same must be provided to the donor, along with the sale price. On the other hand, if the charity intends to use it personally, an acknowledgement should be given by them to the donor, stating the way it is going to be used and that the charity will not sell the car.
The donor must ensure that all the facts and figures related to the sale price or fair market value are presented correctly to the IRS, because he will be held responsible for any wrong information furnished by the charity or the donor. With everything related to the car donation being done properly, it makes a great way to save on your tax amount.