Car Donation: Donate a Car and Save on Taxes

Do you have a used car that you do not drive anymore? That old vehicle may be filling up and using up so much space in your garage. No matter how you assess it, you cannot think of any other good use you can have for the old car. Did you know that you can make them more useful? Why not consider car donation?
For quite some time, car donation has been a good and widely adopted practice. There have been numerous car owners who face the problem of disposing their old cars. Selling can be a good option but doing so may incur additional and costly charges in the form of taxes.
You do not want your old auto to fill the junk shops do you? Through auto donation, you are helping charities and institutions get on and raise further funding for the humanitarian initiatives.
There are still other reasons why owners of old cars would rather do car donation these days. The government is offering hefty and attractive tax breaks for every car donation.
While it is true that you would not generate any income or revenue from donating your car to a charitable institution, some people still are not aware that auto donation is rewarded by the government through the appealing tax incentives given to donors.
If you decide to take a car donation initiative, you surely would be able to save on taxes. As you know, every car donation has specific and appropriate procedures. The most usual is that you fill out forms and provide basic documentary information and details to the charitable institution, which would be your car donation’s beneficiary.
Those documents would not only facilitate voluntary surrender of ownership. Such documents also act as information source for the procedure of tax incentives to be provided to the donor.
Think about it. You are entering into a win-win situation when you decide to go to a car donation procedure. You are filling up a noble role of helping out other people in dire need, while at the same time you are helping yourself generate huge savings through the tax break package provided with the car donation transaction.
If you are planning to donate an old car, it is time you start the procedure by calling up different charitable institutions of your choice. There are numerous charities to choose from. You may choose by sticking to an advocacy, say assistance for cancer patients or funding aged care centers.
By communicating with such charities you would be instructed on the right an appropriate procedure on how to get on with your car donation.
What’s more? Car donation is now made more convenient. You may not need to drive the old car to the charity. Personnel would be sent by the institution to pick up or tow the car.
All you have to do is to wait for those people, surrender your key and accomplish the necessary documentary papers. After that, you are all set to voluntarily transfer the ownership of your old car to the chosen charity.

Taxes and Donating a Car

Wikipedia defines car donation or donate-your-car as thus – car donation refers to the practice of giving away no-longer-wanted automobiles to charity organizations.

In the United States, charitable donations provide a tax benefit; as such, this type of giving has become very popular. For values less than $5000, the value of the tax deduction comes from the donor’s own estimate of the car’s value, even if the charity receives much less money from actually selling the car (usually at auction).

Car donation category has been infested with masters of con craft over the time. Scams occur in this business category without even attracting any headlines. Here are some facts – car donation programs are supposed to be run by not-for-profit organizations. Reality – these are mostly run by for-profit firms. Charity organizations are supposed to benefit most from used car donations. Reality – majority of the sales proceeds are pocketed by used car dealers or fundraisers, and not the charity organization.

Charity organizations don’t come under any audit for a minimum period of 18 months. This helps scamsters spread their wings easily. Even the end of 18 months duration is not a guarantee of an audit.

New laws

In order to curb this widely followed malpractice, IRS has enacted new set of laws. Following are some salient features of these laws –

1. Organization qualification – ensure that the charity organization is qualified to receive the car donation. You will not be eligible for tax deductions if the car is donated to a non-qualified organization. You may check the list of such organizations on ‘Publication 78′ available online or with public libraries.

2. Fair market value deductions – you are eligible for the tax benefits on fair market value of the vehicle, and not the value arrived with the help of the guide. Fair market value can be arrived at with the help of many used-car guides available in the market. Publications 526 and 561 respectively “Charitable Deductions” and “Determining the Value of Donated Property” can be of great help.

3. Itemize your deductions – In order to take full advantage of tax deductions, you need to itemize your deductions on your tax returns. This will depend on the difference between your itemized and standard deductions.

4. Deduction documentation – you must meticulously maintain the documentation required for the purpose. There are many documents including forms, required to avail the benefits. You may refer to Publication 526 for details about the forms and receipts needed to avail the deductions.

New laws on car donation clearly specify the following – when a taxpayer donates a vehicle for which the claimed value is $500 or more, the precise deduction that can be claimed will depend on how the charity plans to use the vehicle. If the auto is sold by the nonprofit organization, then the taxpayer will be able to deduct only the amount of gross proceeds the organization got from the sale. And the donor will have to depend on the charity to let him know the donation amount by the individual tax-filing deadline. In other words, the freedom has been restricted. It is now the amount that the vehicle realizes from the sale (by the charity organization), that will be treated to be deductible, and NOT the one claimed by the car donor.

It is far better to be in touch with your finance portfolio advisor before deciding on car donation.

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