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Thinking of Donating Your Used Vehicle to Charity?

altDecember 2007

Dozens of radio and TV ads from many different charities are currently flooding the airwaves suggesting that you donate your used car or boat. Are you considering it? If so, then you need to know how the 2005 changes in IRS rules might affect the tax deductibility of your gift. You also need to know how to check out the charity you’re considering. This month's report will help you do these things wisely. Planning to donate to a charity but not necessarily a vehicle? You'll want to read this report too. I’m going to start with the most important thing—how to check out the charity so that you know your dollars will go where you want them to. Then, I’ll share the technical details about vehicle donation.

 

 

Check out the charity before deciding to give

Before donating money or a vehicle to a charity, check the charity out thoroughly using these tips:

  • Look for written information about the charity. A web site and/or printed materials should include the organization's name, address, phone number and mission. The materials should also describe how your gift will be used. If you can't find the information on the Internet, ask the charity for it. If the charity isn't willing to provide you with the information, look for another one that is.
  • Make sure that your donation is tax deductible. Donations to a charity that qualifies for Section 501(c)(3) of the Tax code are usually tax deductible. Donations to a nonprofit organization that has 501(c)(4), 501(c)(6) tax status or other tax exempt status are not tax deductible. Don't confuse tax exempt and tax deductible. Tax exempt applies to the charity itself—it doesn't have to pay taxes. Tax deductible means you may be able to deduct the donation on your income tax return. You can use IRS publication 78 Cumulative List of Organizations to check if a charity is eligible to receive tax-deductible contributions. Note that in order to deduct charitable contributions you must itemize your deductions on IRS Form 1040 Schedule A.
  • Check out the charity’s record of accountability. How much of the money collected actually goes into the charity’s programs? Use one or more of the sites listed below this section to review the organization's record. Make sure that any touching story or "heart-rending" request is backed up by facts and a track record.
  • Watch out for names that are similar to well-known legitimate organizations. Phony charities will pick such similar names to catch donors off-guard.
  • Take your time. Don't give in to pressure over the phone or the well practiced spiel at the door. Make your donation after you've had time to check out the charity.

These sites provide resources for donors to use to research and assess charitable organizations.

  • BBB Wise Giving Alliance provides evaluation reports on nationally soliciting charities, "tip" publications, the description of the BBB charity standards, a way to request information or file a complaint, and other resources.
  • Charity Navigator is a non-profit organization that provides evaluations on over 5000 charities. The site also provides tips and resources, articles, and various lists. Their methodology for evaluating charities is explained in detail. They do not accept donations from any of the charities they evaluate.
  • GuideStar is a national database of nonprofit organizations that is produced by Philanthropic Research, Inc., itself a nonprofit organization. They provide information on hundreds of organizations. Free registration is required for detailed information. They also have products for sale.
  • US Charity Offices page from the National Association of State Charity Officials provides links to the state offices that regulate charitable organizations and charitable solicitations.
  • The Better Business Bureau in the area may have reports about the charity. You can find a Better Business Bureau here.

Tips for Donating a Vehicle Wisely

If you're thinking of donating your car, boat, or airplane here are some additional tips.

  • Donate to a charity that handles the transaction themselves. This is a way to ensure that the charity will keep most of the dollars generated by your donation. Some charities use a for-profit broker to handle the transaction. The charity then only receives a percentage of the sale, a flat fee, or a portion of what remains after the broker pays expenses. If you must use a broker, find out what percentage (or amount) the charity receives.
  • Deliver the vehicle to the charity yourself. You'll save the charity the expense of having to pay someone to pick up your donation. That way more of your donation goes to the charity's programs not overhead.
  • Properly transfer the vehicle to the charity. Properly completing the paperwork assigning ownership to the charity ends your responsibility for the vehicle. If you fail to do this, you could still be held responsible for anything that occurs with the vehicle. Make sure you keep a copy of the records.
  • The charity must provide a written acknowledgement to the donor. This is necessary for the donor to claim a tax deduction. See the tax deduction requirements section next for more details.
  • Determine and document the fair market value of the vehicle. According to the IRS, the fair market value cannot exceed the private party sales price listed in a used vehicle pricing guide. If the charity sells your vehicle rather than keeps it for use (and most sell), then you may deduct only the exact sale price (see the next section).

Requirements for deducting a vehicle donation

As of January 1, 2005 new IRS rules went into effect regarding the tax deductibility of vehicle donations. The biggest change is that if the vehicle is sold by the charitable organization (and most are), the deduction claimed may not exceed the gross proceeds from the sale. For example, if a car with a fair market value of $1000 is sold by a charity for $750, then the donor can only deduct $750.

To give you the data you need for taxes, the charitable organization must provide a donor with a written acknowledgement—Form 1089-C or other written document—within 30 days of the vehicle's sale. The acknowledgement must contain the following information:

  • The donor's name and tax payer identification number (usually the social security number).
  • The vehicle identification number.
  • The date of the donation.
  • One of the following:
    • a statement that no goods or services were provided by the charity in return for the donation.
    • a description and good faith estimate of the value of goods or services, if any, that the charity provided for the donation.
    • a statement that goods or services provided by the charity consisted entirely of intangible religious benefits
  • A statement certifying that the vehicle was sold in an arm's length transaction between unrelated parties.
  • The date the vehicle was sold.
  • The gross proceeds received from the sale.
  • A statement that your deduction may not exceed the gross proceeds from the sale.

The donor may be able to deduct the fair market value in the following circumstances. The charity must still provide the donor with a written acknowledgement that certifies:

  • The charity intends to make significant intervening use of the vehicle. The statement must include a detailed description of the intended use, the duration of the use, and certification that the vehicle will not be sold before completion of that use.
  • The charity intends to make a material improvement to the vehicle. The statement must include a detailed description of the material improvement and certification that the vehicle will not be sold before the improvement is completed.
  • The charity intends to give or sell the vehicle to a needy individual at a price significantly below fair market value and that the gift or sale is in direct furtherance of the charity's charitable purpose of relieving the poor and distressed or the underprivileged who are in need of a means of transport.
  • The charity sold the vehicle for $500 or less.

The written acknowledgement must be attached to the donor's tax return. The donor may also have to attach Form 8283 Noncash Charitable Contributions to their return.

These IRS publications provide more information on these new rules:

In the right circumstances, donating a used vehicle or boat can offer an excellent means of supporting a charity you like. Just be sure to do your homework on both the charity and the donation process.


Prepared by Remar Sutton and Associates and licensed to Educators Credit Union. Copyright 2007. All rights reserved.