Have an old hunk of junk or clunker of a car and looking to get rid of it? Perhaps it was a side project that took too much time or an old unused car which takes up so much room in the garage or driveway. If the maintenance is twice as much as the vehicle is worth, it may be time for the old junker to find a new home. Yet the positive thing is donating the car to charity is a great way to salvage thousands of dollars in tax deductions, [1] and it is easy to do.
How To Know Whether It’s a Good Time to Donate A Car to Charity
People often question whether it’s worth donating their car to charity. There is definitely a response to that! Donating a car will salvage massive quantities of money and time. This is especially true of donated cars which are still in good working shape. Cars that may be sold also gain a large tax benefit if given to a charity. [3] Here are six reasons to donate an old car:
1. Helping out a charity
Not only does auto donation help get rid of the garbage that has been taking up space for years, it also helps charities make a difference in the world.
2. Provide a working car for a charitable organization
A reliable car can be used to do many useful tasks, no matter how old. All organisations that use donated cars are United Way, the Salvation Army and Goodwill. There are also a number of technical schools and community colleges which can allow a donation of a vehicle.
3. Tax deduction
There are stringent regulations in place that make this method more difficult but deductions can be similar to fair market value. When a charity sells a donated car, worth more than $500, it must be entitled to a written notice outlining the gross proceeds from the purchase and stating that the vehicle was “sold in an arm-length transaction between unrelated parties”. Charities who plan to use the donated car in their services must also give a written report explaining how and when it will be used. Vehicles priced at over $500 allow an IRS Form 8283. For cars worth more than $5,000, an independent appraisal is required, along with a copy of the charity certification with the tax return[4].
4. Salvage time by not having to sell the car
Donating a vehicle is a seamless process with not headaches! There’s no need to think about putting out an ad, talking to potential purchasers, showing them the car and negotiating the price.
5. No pick-up fee
Some charities that receive donations from cars can also collect such vehicles at no charge. Towing charges will, however, be excluded from the income, and hence the tax deduction.
6. No clear title is needed
There is no issue with other charities getting a car without a description. The vehicle must then, however, be sold for parts or scrap which will minimize the tax deduction, but still clear the driveway and avoid confusion when it comes to working out the title.
Conclusion
IRS audits are often triggered by non-cash donations [6] so be meticulous when it comes to documenting everything. Reading the IRS donor guide to vehicle donation is recommended. [7] Otherwise, remember that donating a car that the charity will use or sell to a person who needs it will get closest to a vehicle’s blue book value. [8]
[1]https://www.investopedia.com/terms/t/tax-deduction.asp
[2]https://www.investopedia.com/terms/f/fairmarketvalue.asp
[3]https://www.investopedia.com/articles/personal-finance/041315/tips-charitable-contributions-limits-and-taxes.asp
[4]https://www.investopedia.com/terms/a/appraisal.asp
[5]https://www.investopedia.com/terms/t/title.asp
[6]https://www.investopedia.com/terms/n/noncash-item.asp
[7]https://www.irs.gov/pub/irs-pdf/p4303.pdf
[8]https://www.investopedia.com/terms/b/bluebook.asp