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Family receiving a donated car

Tips for Donating a Car

Altruistic individuals donate their old cars to charity out of the goodness of their hearts. Yet there is often a component of self interest to such a transaction. The donor can claim a tax deduction for donating a vehicle to charity. Most charities will flip the car to a buyer, but a few will actually use donated vehicles to haul goods and people.

Operational vs. Financial Purposes

When a charity sells a car that has been generously donated, it does so to raise funds for a cause. Individuals who donate vehicles should be aware that their tax deduction can only go as high as the price that the charity sold the car for. This is a vital piece of information, as the actual value of the vehicle might be much more than the price that the charity was able to sell it for.

Instead of forcing the charitable organization to pay a tow truck operator to transport the vehicle to the designated site, donors should drive the vehicle there themselves and return home by taxi or with the help of a friend. This way the charity can keep the total value of the car instead of paying someone to transport it. Oftentimes, charities will sell donated vehicles through a specialized dealer who gets a cut of the sale price. Donors must find out exactly how much the charity actually received from the sale and use this figure for their tax deductions. Charitable individuals should do their homework and find a charity that will actually use the vehicle for operational purchases. This way, donors can base their tax deductions on the vehicle's true fair market value.

Eligibility for Tax Deductions 

Although it seems like an inconvenience, car donors should spend some time researching charities to determine which ones are truly eligible to receive tax deductible contributions. Donors need a paper trail of documentation for tax deduction purposes. Don't hesitate to ask the charities for a copy of their letter from the IRS that states their tax exempt status. Keep this document in case an audit is conducted. Always get a receipt from the charity after donating the vehicle.

Receipts and Forms

If the vehicle is valued at $500 or more, the donor is required to complete section A of IRS form 8283 along with his tax return. The donor will also need a written statement from the charitable organization that proves that the donation took place. If the charity sells the vehicle, it needs to provide the donor with documentation to prove that the vehicle was sold to an unrelated party at “arm's length”. This document must show the price that the vehicle was sold for and it needs to be sent to the donor within 30 days of the sale.

If the charity keeps the car, it must provide written proof to the donor in the form of a receipt that shows that the vehicle was retained by the organization and not sold. This document must also indicate how the organization plans to utilize the vehicle and state that it will not be sold. Potential car donors should be aware that non-cash donations often raise red flags with the IRS. So, carefully maintain transactional records.

Donors should know that if the vehicle is worth $5,000 or more, an independent appraisal must be performed. He will also have to complete section B of the IRS form called 8283. If the vehicle is worth less than $5,000, its value will be determined by the National Auto Dealers Association's guide or the Kelley Blue Book. Be aware that the value of the vehicle must be the figure that corresponds to the car's model, year, condition, and mileage. Donors can't simply choose the highest value for the model without taking these other factors into account.

Last Updated: February 17, 2015