Donating your old vehicle to a charity seems like a good idea. Or so it seems. You can dispose off the car without too many hassles and get a tax deduction on it, which, otherwise, you might not get if you try to sell the car by yourself. There is also the fact that second-hand car dealers do not enjoy a very good reputation.
The charitable organizations either use the vehicles for their own purposes or the vehicles are sold en- masse. Most often, the charity uses a dealer with a flat rate per car, which won't be much. There are a number of rules governing such a donation. So before you donate a car; check the rules governing these donations.
You have to check the veracity of charitable organization and its eligibility to accept tax deducted donations. Make sure you get a copy of the letter from the Internal Revenue Service (IRS) to the organization which states its tax exemption status. You will also have to ensure that you get an official receipt for your donation. One thing you will have to keep in mind, at all times, is that when you donate your car without any cash transactions, you will attract the attention of the IRS and an audit of your accounts will be called for.
It also pays to keep the record of the donation as a precaution. In addition, if the vehicle has been valued at more than $500, you will have to fill in an IRS form which will have to be attached to your tax returns. You will also have to attach a receipt, acknowledging the donation, from the organization. Should the car be sold by the organization, you must ask for a certificate that states the sale price and that it is an arm's length transaction, i.e. when the buyer and seller have no relationship to each other. The eligible tax deduction will be on the sale price.
If the organization does not intend to sell, then within 30 days, they must give you a receipt along with a certificate stating what it plans to do with the vehicle, as well as, a declaration that the vehicle will not be transferred or sold later. Charitable organizations are penalized if bogus acknowledgements are provided. You will need to get an appraisal by an independent authority, if the vehicle is valued over $ 5,000. For vehicles which are valued below $5,000, refer to the National Auto Dealers' Association guide to assess the right value. You need to take the condition of the car, the year of manufacture and its condition on the road to get the right valuation.
When you donate a car to a charitable organization, the onus is on you and not the organization, to assess the real value of the vehicle. If you have bought new tires or made any other improvements to the car, you will need receipts to prove the same. Take a good picture of the vehicle and remember that if the IRS challenges the vehicle's valuation, you will have to answer the questions.
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