What You Need to Know About Taxes After Donating Your Car

8/18/2016


What You Need to Know About Taxes After Donating Your Car

There are many benefits you can receive after donating a car. Along with knowing you’ve helped another person, you will also be eligible to receive a tax deduction. If you are interested in receiving a tax deduction after donating your car, you will need to do some homework in order to get the deduction.

Here are some tasks you will need to complete to receive your tax deduction.

Find a Charity

First, find one or several possible charities where you could donate your vehicle. Ask coworkers, friends, family, and neighbors, or you might try your favorite mechanic for a reference. Be sure to search online, too.

Once you have found the name of a charity, look at its website. Then call the charity and ask for the transportation manager. Tell him or her about the vehicle you wish to donate, and ask how the charity will use your vehicle. The use is the key to learning what deductions you can expect.

Determine the Value of Your Vehicle

If your car is worth more than $500, the value of your car will depend on what your chosen charity plans to do with the vehicle. However, you can expect a minimum deduction of $500 when you donate any vehicle.

If a charity plans to sell your donated vehicle, then your deduction is the gross proceeds the charity will make from the sale. Once a charity sells your car, they will send you the receipt of the purchase, indicating the amount you can claim on your deduction. This receipt must contain the following information:

  • The gross proceeds from the sale
  • The date the car sold
  • A statement that says that your deduction can’t exceed the gross proceeds
  • A statement that says the car was sold between unrelated parties in an arm’s length transaction

Your chosen charity must provide you with the receipt and statements within 30 days after the car sold.

If your chosen charity doesn’t sell donated cars as part of its mission, you can use your car’s fair market value. You will use this same method to value your car if the charity donates your car for less than it’s worth or intends to use your vehicle. If your car qualifies under one of these circumstances, you will need a statement from your chosen charity verifying the use of your car.

Keep in mind that you are responsible to provide documentation if the IRS decides to audit your donation.

Complete Necessary Paperwork

One of the most common situations that the IRS chooses to audit is no-cash donations, which are donations that don’t involve giving money. Donors should keep detailed documentation as evidence after they donate a car.

Every donor will need to document the following information:

  • The name and address of the chosen charity
  • The date the vehicle was donated
  • A description of the vehicle
  • An acknowledgement from the charity

In addition to this documentation, people who donate cars that are worth more than $500 also need to fill out Form 8283, Section A. If a car is worth more than $5,000, the donor needs to fill out Form 8283, Section B. Cars that are worth more than $5,000 and meet one of the exceptions listed above will also need a written appraisal.  

Transfer the Title

The IRS usually recommends that donors personally transfer the title of car to the charity to avoid any confusion in the future. Most states require an individual to fill out a form through the state’s department of motor vehicles. This department will provide the donor with a statement that proves that the vehicle was donated.

Before you give your car to the charity, remove the license plate to avoid any potential liabilities. Also, make a copy of the car’s title for your records, and take pictures of your car before the donation.

Once you are ready to donate your car, ask the charity you’ve selected if they offer a towing or pickup service. If not, consider driving your car to the charity. You can help the charity save money on the donation by avoiding pickup or towing services.  

If you need assistance donating your car, the IRS does provide help. Visit www.irs.gov for more information regarding vehicle donation. Most charities also provide assistance to donors. Consult the charity you’ve selected if you have further questions about donating your vehicle.


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7 Steps to Prepare Your Car for Donation

8/11/2016


Vehicle donation represents one of the best ways to dispose of a car that no longer works for your lifestyle or needs without creating unnecessary waste. While the requirements for each form of donation differ, you can take these seven steps to prepare your car (and yourself) for the donation.

1. Check Your Charity’s Requirements
A charity which refurbishes and resells car parts will have different requirements than an automotive school. Check with your charity to get a checklist of any paperwork, repairs, and preparations required. You’ll find many common requirements on this list. However, it’s always a good idea to go over your charity’s policies so you know how the car will be transported, what paperwork to expect, and how your car will be used.

2. Find the Title and Prepare the Paperwork
Regardless of charity type, you will likely need to produce the title before donating the car. Put together a folder of important paperwork, including the title, title transfer form, and any accident history for the vehicle. If you still make payments on your car, you must complete a lien release form to transfer the loan to your charity. Check with your organization to see if they accept cars with liens on them. Fill out your paperwork carefully, as the DMV does not accept title forms with errors.

3. Have a Basic Checkup
If you are donating directly to a church or a person in need, consider having a basic inspection performed. Check the condition of basic components, such as the windows, wipers, lights, brakes, and tires. Double-check the condition requirements of your charity, and make any repairs accordingly. While many scrap charities take inoperable vehicles, charities that provide second-hand vehicles to those in need may ask you to perform simple maintenance tasks beforehand if you can.

4. Perform Any Needed Cleaning
Similarly, evaluate the cleanliness of your car and the purpose it will serve after donating. If you’re donating to a local cause, consider performing some standard cleaning before turning your car over. Remember, you do not need to deep-clean the vehicle unless required by the charity. Many organizations, such as automotive schools, perform and teach these cleaning methods after you donate the car.

5. Put Any and All Keys Together
For many car donation charities, all you need to donate is the car, the title, and the keys. Put all the keys you have, including a remote key fob if you have one, together on a single key ring. To help you keep track of the keys, keep them in the same place as your paperwork.

6. Remove All Personal Belongings
The last thing your charity wants is to end up with a pair of your sunglasses and a pack of gum along with your car. During your cleaning, give your car a once-over to ensure that you have removed all personal items. Be sure to check under the seats, floor mats, and dashboard for any hidden personal items.

7. Wait Until After the Donation to Cancel the Insurance
Your last step when donating a car is canceling the insurance. While the title still belongs to you, you should maintain your usual insurance to avoid any legal complications. Do not remove your license tags or cancel your insurance until you drop your car off or have your car picked up and the transfer is complete. Return your tags to your local DMV along with the relevant paperwork. Questions about our donation program? Contact a staff member here at the Newgate School to get answers to your specific questions. Perform these tasks so that when you donate your vehicle, you can do so without wondering if you left something behind or neglected to finish a piece of paperwork.


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