A charity that uses a donated vehicle for transportation or hauling goods obviously benefits directly from such a donation. However, in many instances donated automobiles will be sold en masse, either by the charity itself or by a trader to raise funds for your charity. In the event of a dealer, the charity generally receives a flat fee a car, sometimes as small as $45 per car.
Listed below are some tips for donors who would like to donate a car to charity. Beware the donor's tax deductions for car donations may be restricted to the price where the charity sold the car.
To get the highest tax deduction on your car donation, and to receive the satisfaction which the complete value of the automobile benefits a charitable function, give it to some charity that will use the automobile in its operations or will give it to some individual in need. Otherwise, your tax deduction won't be based on the fair market value, but will be limited to the amount of money the charity receives from the sale of your car. If the charity you are donating to does market the vehicle, ask what percentage of the profits they receive. Watch Car Donations: Taking Taxpayers for a Ride for more.
Ask if the charity takes car donations directly, without requiring a third party. If you can, drive the car to the charity instead of using a towing or pickup services. This will allow the charity to maintain the complete amount of any profits from selling the car.
Make sure the charity is qualified to receive tax deductible contributions. Request a copy for the records of the organization's IRS letter of determination which verifies its tax exempt status.
Make certain that you receive a receipt from the charity for your car donation.
Be mindful that non-cash contributions are among the most common causes to an audit from the IRS, which means you will want to document the value of the car and maintain records of it.
Donors are required to file with his/her tax return a written acknowledgement from the charity. If the charity sells the vehicle, the charity must provide the donor with a certificate that the automobile was offered at"arms length" between unrelated parties and the selling cost of the automobile within 30 days. In this case, the donor's tax deductions will be limited to the total amount the charity sold the car for. If the charity does not sell the vehicle, it has to offer the donor with a receipt within 30 days of the contribution. The charity may also be required to give certification to the donor saying how it plans to use or enhance the car and stating that it promises not to sell or transfer the vehicle. Penalties are imposed on charities that offer fraudulent acknowledgements to donors.
If the vehicle is worth $5,000 or more, an independent evaluation is necessary. Make sure that you use the right figure for your date, mileage, and condition of your car. Picking the maximum figure for your vehicle model and year without taking into consideration other factors may not pass muster with the IRS.
Take pictures of the car and save receipts for new tires or other updates to verify its value.
Bear in mind, it is the donor, not the charity, who's obligated to appreciate the car and who'll pay the penalties if an IRS challenge finds your figure inaccurate.