You’ve heard the vehicle donation ads from the so-bad-they’re-good public radio solicitations to the catchy jingles from other groups. (And if you now have the Kars4Kids song in your head, you have our deepest apologies.)
Maybe you’ve found yourself wondering if donating a vehicle is right for you. Or perhaps you’ve wondered: What is the deal with donating a car, anyway? How does it work, especially when some of these ads come out and say the car can be a clunker — that it doesn’t even have to be drivable? Is it a scam?
We’re here to tell you: It’s not a scam. In fact, it can be a smart tax move, especially if you think the vehicle’s listed value is greater than what you could actually get by selling it. Also, your donation can help a worthy charity.
To learn more about how it works, and to find out how to donate a vehicle the right way, we spoke to Ashley Post at Charity Navigator, the leading non-profit for evaluating how other non-profit organizations use your donations. Here are her 5 tips to donating your vehicle to charity.
1. Find a charitable organization that takes vehicle donations
Not every charitable organization will take a used car, but many will. Charity Navigator recommends finding one that handles the transaction itself, rather than relying on a middle-man. That way, you know that 100% of the profits remain at the charity. If you’re not sure whether a charity takes vehicles (or how it handles those it receives), you can always call to ask.
2. Vet the charitable organization
Make sure the charity you want to donate to is a 501(c)(3), which means it’s recognized by the Internal Revenue Service as a tax-exempt, not-for-profit organization. The charity should be able to tell you its status and Employee Identification Number (EIN) or list it on its website, but you can also search Charity Navigator or the IRS website to confirm. (At Charity Navigator, you can also assess how efficiently the organization manages its budget.)
As for what will happen to your old car or truck, typically your charity of choice has one of three purposes in mind. The first is straightforward: It uses vehicles as part of the services it provides. For example, it might distribute food to people with limited mobility or drive around town to collect donated goods. In those cases, the organization will want a vehicle that is still drivable, even if it’s not especially new, clean or free of dings and scratches.
The second way charities use donated vehicles is by selling them to scrapyards, which strip them down for parts. The advantage is that these organizations will typically come and collect your car for you, meaning you don’t have to figure out how to get rid of a non-functioning vehicle. (You also won’t have to pay for its removal.) The charity benefits from the money paid by the junkyard; you benefit by getting rid of a junker for free then reaping the tax benefits outlined below.
An organization might also sell the vehicle you donate. Again, the charity likely has relationships in this field that you do not, which is why donating the vehicle might be easier than trying to sell it yourself. (It might also be better for your bottom line; more on that below.)
3. Transfer the vehicle correctly
You don’t want liability on a vehicle that’s no longer in your possession. If someone uses the car for anything from parking illegally to committing a more serious crime, you could find yourself on the hook. (Remember: The organization might be selling your vehicle to someone else almost immediately.) Spare yourself the headache and make sure you formally transfer ownership by signing the vehicle over.
4. Document the vehicle transfer in writing
Chances are, you will want the tax benefits that come from making a reasonably substantial donation. To avoid running afoul of the IRS (especially if you’re audited), make sure you get a written acknowledgment from the charity. This will state the vehicle’s fair market value and that the organization received it from you without paying you for it.
If you value your vehicle over $250, a written statement will suffice. If your vehicle is valued at more than $500, you’ll need to complete section A of the IRS Form 8283 and attach it to your return. If your vehicle is worth more than $5,000—a high value for a donated vehicle, but we’re covering our bases here—you’ll need to have an independent appraisal and fill out Section B of IRS Form 8283.
5. Use fair market value for the vehicle
As with any donation, giving away your car is something you’ll want to list on your tax return as an itemized deduction to lower your bill. The question is: How do you determine what your vehicle is worth? The answer is: It depends. If the charity turns around and sells the car at auction, you can only use the amount for which the vehicle sells. This is considered fair market value because, by definition, this is what the market has valued it at. (Fairly, you might say.)
But in pretty much any other situation — if the charity keeps the vehicle, if the charity fixes up the vehicle before selling it, if the charity turns around and sells the vehicle at a discounted price to someone with a low income, or if your vehicle is worth less than $500 — you can turn to reliable sources such as Kelley Blue Book or NADA Guides, which is owned and operated by J.D. Power, to determine the fair market value of your car.
A few other things to keep in mind
Make sure to remove any and all personal information from your vehicle before handing it over. If the car is sold, you don’t want that sort of information falling into the hands of someone else.
Cash is still king when it comes to making impactful donations. Donating a vehicle is helpful, to be sure, but the equivalent cash value will probably help the charity more.
All told, donating your used vehicle is a generous gift to an organization that can use it, no matter what state the vehicle is in. Now, excuse us while we try to get that Kars4Kids song out of our heads.
Louis Wilson is a freelance writer whose work has appeared in a wide array of publications, both online and in print. He often writes about travel, sports, popular culture, men’s fashion and grooming, and more. He lives in Austin, Texas, where he has developed an unbridled passion for breakfast tacos, with his wife and two children. Opinions are the writer’s own.