If you have a car that is getting close to being on its last legs, or a car that you just don’t use anymore but don’t really want to sell, donating it is a good way to help a charity out and give yourself a tax break. Many people donate cars either year to charities, and the charities either use the vehicles or sell them for the proceeds. The decision that the charity makes influences the tax break that you get for donating the vehicle in the first place.
To get started, contact an organization like V-DAC.
These organizations connect individuals who have cars to donate with organizations who either need the vehicles or want to sell the vehicles for the proceeds. V-DAC and its peer organizations process all of the paperwork at the state level so that the title transfer goes smoothly. Some states require you to submit a copy of your title with the paperwork, and others do not. A representative from V-DAC can answer that question for you, or you can call the Department of Motor Vehicles in your state to find out what the law is where you live.
Once you have learned the process for your state, it is time to find out the value of your car for donation purposes. First of all, you’ll want to find the fair market value of your car. Websites like Edmunds.com and Kelley’s Blue Book have online engines that make it easy for you to find this number.
Next, you need to talk to a representative from the charity to which you are considering making your donation. The purpose of this call is to find out what the charity plans to do with your car. If the charity plans to give your car to a needy person, or sell it to that needy person for a price below fair market value, then you get to deduct the fair market value amount that you calculated. You also get that same deduction if the charity plans to make material improvements to the vehicle. These include things like major mechanical repairs or body refurbishment to the vehicle.
However, if the charity plans to sell your car at or near fair market value, then the tax value of your car for donation purposes changes. Instead, you get to deduct the gross proceeds of the sale.
Here’s one example. On September 5, 2013, you donated your truck to a local homeless shelter. Before the donation, you had calculated the fair market value as $6,200. On October 1, 2013, the shelter sold your car to someone who was needy for $500. You get the $6,200 fair market value deduction. However, if the shelter sold your car to someone who was not needy for $6,000 in gross proceeds, you only get the $6,000 fair market value deduction.
Now that you understand how the tax value of a car for donation purposes works, you are in a better position to make an informed decision about your own situation. Consider the alternatives of selling your car outright, donating to a charity that plans to make charitable use of your car, or donating to an organization that will sell your car for a profit, to determine the most advantageous choice financially.