Vehicle Donation: Everything you Need to Know
Do you have an old vehicle that you no longer use?
If so, one option to dispose of it is to donate it to a charity. Depending on the needs of the charity and the type of vehicle you own, the charity may use the vehicle itself, sell it to a salvage yard or sell it to someone in need at a reduced price. In some instances, your vehicle doesn’t even need to work properly to donate it to a charity.
Many charities make donating your car easy in just a few step, they even pick up your car for free. But if you want to claim a tax deduction and get a little bit back for yourself, the rules are a bit more confusing.
Read on to learn more about donating your car and getting a tax deduction if you’re eligible.
How do I donate my car?
The simplest way to donate your car is to contact a charity and arrange to have your vehicle picked up. Many larger charities offer dedicated services with hotlines and websites with donation forms. There are also dedicated car donation services, which take care of all the details and let you pick which charity you want the proceeds to go to.
If you’re willing to do a bit more work, another option is simply selling the car and donating the cash. In some situations, it may be more beneficial to the charity because you can sell it for more than the charity might get at auction. The choice is yours.
Steps to Donate Your Car Safely
Donating your car to charity is generally safe. However, we recommend that you take certain precautions to avoid being held liable for anything that happens to the car after it has been delivered.
- Beware of organizations that seem too good to be true, for example, if they promise you that you can deduct as much tax as you want.
- Get a receipt from your charity.
- Remove license plates from the car when you are done driving it.
- Submit a transfer form to transfer your title to your state’s motor vehicle or transportation agency.
Tax deductions: things you need to know before donating your car
One of the most profound benefits of donating your car is that you can deduct your charitable donation. But, like anything controlled by the IRS, it’s not as simple as donating a car to charity and then writing it down against taxable income. Instead, you will need to meet certain criteria in order to deduct the donation for tax.
You will need to itemize your deductions.
You can only claim a charitable deduction (even for cars) if you itemize your taxes. You may also not benefit from it at all at tax time.
You will need to donate to a qualified charity.
For your donation to be eligible for a tax deduction, you must deliver your car to a tax-exempt religious institution or a registered 501(c)(3) organization. You can check the charity’s eligibility by talking to a tax expert to help you out with the findings.
You will need to gather some documents.
Once you deliver the car to charity, you should immediately receive a written receipt. Depending on what the charity does with your car, you may even receive a written confirmation or Form 1098-C (Motor, Boat, and Airplane Contributions) at some point. Keep this document because you may need the information to file your taxes, and you may even have to submit the document yourself if you deduct more than $500 in taxes.
Additionally, if you are donating a car worth more than $5,000 and the charity does not intend to sell it for cash, you will also need to obtain a formal written appraisal at least 60 days before donating the car.
Filing the appropriate tax forms
Most charities sell the donated cars for cash. If so, you can deduct the final sale price of the car, for which the charity will provide you with a written receipt or Form 1098-C.
You will need to file the following documents with your tax return, depending on the amount you can deduct:
- $500 or less: Nothing special, but keep your records in case of an audit.
- $501 to $5,000: Submit Form 1098-C or a written receipt plus Section A of Form 8283.
- Over $5,000: Submit Form 1098-C or a written receipt, along with Section B of Form 8283 and a written appraisal of the vehicle if the charity is not selling it.
Here at Shore Financial Planning (SFP) we are a fee-only, fiduciary wealth management firm located in Monmouth Beach, New Jersey. We specializes in tax-focused wealth management that involves playing an active role not just in investment management, but integrating it with estate planning, insurance, retirement planning, business planning, goal setting, education planning, and also tax planning and tax preparation. Tax-Focused Investment Management can enhance returns through minmimizing taxes. We minimize taxes by focusing on investment location, gain/loss harvesting, charitable giving and passive investing. Over time these strategies help clients pay less taxes and enhance their overall investment returns. Shore Financial Planning’s tax department is lead by Joseph Vecchio CPA, a New Jersey Certified Public Accountant (CPA) and the firm has a total cumulative 60+ years of tax experience