6 Reasons to Donate Your Car to Charity

Before 2004, donating a car to charity was a popular tax gambit. People would take thousands of dollars worth of tax deductions (no matter what the car ended up fetching for the charity at a sale or auction). Congress put a stop to this by passing the American Jobs Creation Act of 2004, limiting the deduction one could take for a donated car, truck, boat or plane worth more than $500. Instead of letting taxpayers simply deduct the published fair market value of the vehicle, as before, the Act decreed the deduction be determined by the exact amount the car actually garnered for the charity – and documented by a receipt from the charity to the donor.

6 Reasons to Donate Your Car to Charity

Cars often go for rock-bottom prices – $30 to $50 – at charity sales and auctions. Not surprisingly, donating that old auto suddenly became less popular.

So, is a car donation still worth it? Well, if you have a junker, it’s probably not going to give you much of a tax deduction. On the other hand, if you have car that can be used by the charity, the donation could be significant. (For a backgrounder, see Deducting Your Donations).

Why Donate

If you have a car in decent working condition, by donating it you will:

1. Help a charity whose work you believe in. Maybe that seems obvious (most of us make donations to charities whose work we support), but it’s true.

2. Provide a vehicle for the charity to use. As long as your car is useable, many charities can make good use of it: delivering meals to the elderly, taking people to doctors, or anything else that furthers the charitable mission. Some of your best choices for charities that actually use donated cars for their activities include the United Way, Goodwill and the Salvation Army. On the local level, think about community colleges and vocational schools; their education programs use donated cars to train mechanics.

3. Get a healthy tax write-off. The rules are strict since the law changed in 2004, and the process more complicated, but a deduction approaching fair market value can still be had. If you donate a car valued over $500, and the charity sells it, you must get a written notice from the charity stating that it was “sold in an arm’s length transaction between unrelated parties” and the gross proceeds of the sale. If the car is going to be used by the charity in its programs, then you will get written certification of its intended use and planned time of use. The charity must not sell or exchange the vehicle before the planned time of intended use. If the car is worth more than $5,000, you must also get an independent appraisal stating so. If the car is worth more than $500, you will need to file IRS Form 8283 and attach to your return. If the car is worth more than $5,000, in addition to Form 8283, it might be a good idea to include the independent appraisal and the charity’s certification with your return as well.

4. Avoid the hassles of selling the car yourself. You won’t need to pay for newspaper ads. Nor will you deal with phone calls or emails – or have to show the car to potential buyers and haggle over the sales price.

5. Free pick-up. Many charities that accept cars will collect and tow them away for free. But you do need to realize the charity will deduct this cost from the car’s value, which will reduce your tax deduction. Of course, if towing amounts to a significant percentage of the car’s worth, you can always drive it in yourself.

6. Get rid of a car that does not have proper title. Some charities will take a car for which you cannot find the title. They probably will only be able to sell it for scrap or parts, reducing the value of your deduction, but at least you can get it out of your driveway and can avoid the expense of replacing that title.

The Bottom Line

Non-cash donations are a common trigger for IRS audits. So, after you make your generous contribution, make sure you carefully document the transaction and keep the documents in your IRS tax file for that year in case your accountant or tax preparer needs it. Also familiarize yourself with the IRS’ publication “A Donor’s Guide to Vehicle Donation.” That way you can be sure you are following all the rules.

You also want to make sure the charity you select is a qualified organization. You can check the list of qualified organizations at this IRS website.

Donating a car to charity can be a win-win for you and the charity, provided the donation meets the provisions of the 2004 law. Remember, the most beneficial donation involves a car that can be used by the charity or – if transportation for the underprivileged is part of the charity’s mission – sold directly to a person who will drive itOnly then (and with the proper documentation) can you take a figure near the car’s blue book value.