For several years in the early 2000s, I worked at a Boys & Girls Club in downtown Columbus, Ohio. Though it was an incredibly rewarding job, the staff at our club were handed an administrative headache when a local resident decided to donate his 15-year-old Toyota Land Cruiser with 600,000 miles on it. (And yes, you read that number correctly.)
While we were all very impressed the car had racked up that kind of mileage, we were stymied as to what we could do with the donation. It couldn’t be used as transportation, since no one would want to drive kids around in a car with that much wear-and-tear. And selling it would be difficult, considering its incredible mileage and age.
Basically, our altruistic donor had realized that getting rid of his ride would be a major pain in the neck, so he passed that pain along to us (while receiving a sweet tax break). Frankly, we never should have accepted the donation.
Since that time, the IRS has changed what kind of deduction you can take for donating a car to charity, making donations more complicated than they used to be. If you’re considering giving away your car, here’s what you need to know:
How to Donate Your Car to Charity
Pick the Right Charity
Back in 2004, when our donor dropped off the car with the Boys & Girls Club, the IRS allowed taxpayers to take a tax deduction based on the vehicle’s fair market value — no matter whether the qualified charity used it, gave it to a needy person, or sold it.
These days, however, you’ll only be able to claim the full market value if the charity uses the car for its operations or gives it away to a person in need. If the charity sells the car, then you’ll only be able to claim the amount of money the charity receives for the sale. Charities that sell donated cars often work with a car dealer who pays the charity a flat fee per vehicle (which can be as little as $45).
This is why it’s important to give your car to the charity that can make the best use of it. Look for a charity that can accept donations directly — rather than through a third party — since that can also cut into the amount of money the charity receives if they do sell it. And it should go without saying that you must choose a charity that’s eligible to receive tax-deductible contributions.
Know the Price Floor & Ceiling
If your car is worth $500 or less, then you can simply deduct the value of the car from your taxes, no matter what the charity does with the car. If your car is worth more than $500, however, you’ll only be able to deduct the fair market value if the charity uses or gives away the car. You may determine fair market value using the Kelley Blue Book, Hearst Black Book, or National Auto Dealers Association (NADA) guide.
If you donate a car worth more than $500, you must complete Section A of IRS Form 8283 with your tax return, as well as provide certification from the charity regarding its sale price or projected use of the car.
If you’re donating a car worth $5,000 or more, then you’ll have to get an independent appraisal of the value of the car. The IRS considers the donor (and not the charity) responsible for determining the correct value of the car, which means you’re also responsible for any inaccuracies — and the penalties that result.
It’s important to note that non-cash donations are one of the most common triggers for a tax audit by the IRS, so make sure you have good records and careful documentation of the value of your donation.
The Bottom Line
Donating a car to charity isn’t a simple or easy way to get rid of a car you no longer want — but it can be a good way to support a cause you care about and receive a tax break.
Have you ever donated a car to charity? Any tips for our readers?