Can’t Sell or Trade in Your Used Car? Donate It

If you are purchasing a new car, consider donating your old car to charity as an alternative to trading or selling. In addition to helping out your favorite local cause, you may also qualify for a tax deduction if the organization is a registered 501(c)3. But there are some important points to consider before making your donation.

Research the nonprofits

It’s best to donate your car to an organization that accepts vehicles directly and handles the transaction themselves. If a charity is using a middleman to process their donations, the middleman will often take a cut of the majority of the car’s value. According to Charity Navigator, even the most reputable brokers keep up to 50% of the vehicle’s value as their administrative fee. Before donating, ask what percent of the donation goes directly to the charity.

You can check to see if the organization you want to donate to is an eligible nonprofit organization that qualifies you for a tax deduction by using the IRS’s Tax-Exempt Organizations Search Tool. Other helpful sites for seeing a charity’s financial snapshot include GuideStar and Charity Navigator.

Understand the tax laws

Once you have donated your vehicle, there are a few important points to consider about the tax deduction. A good resource to explain all of this is the IRS publication 4303 A Donor’s Guide to Vehicle Donations. Tax deductions are broken down into two categories:

• If the donated vehicle sold for $500 or less: the IRS allows you to claim a tax deduction for either the vehicle’s fair market value on the date of the contribution, or $500, whichever is less. This might be more than you would get for trading it in or selling it.
• If the vehicle sold for more than $500: the charity should provide you with form 1098-C Contributions of Motor Vehicles, Boats, and Airplanes as an acknowledgment of the donation. You may be able to deduct the fair market value of your vehicle if the charity intends to give or sell the vehicle to a needy individual at a price significantly below fair market value and doing so fulfills the charity’s mission of assisting low-income individuals who are in need of transportation.

Think local

Many car donation nonprofits are large national organizations and are working to process the donations of many different organizations. Before donating, investigate where they are located and operating from. If you want your donation to truly impact your community as well as a charity, consider donating to an organization with offices and staff in your state or region.

Donating a vehicle is a great option for getting rid of an unused or unwanted car, truck, minivan – even a boat or RV. You receive a tax deduction and you may just change a life!

This article was written by Amy Barcomb, the assistant director of operations for Good News Garage. If you’re thinking about donating your car, visit the Good News Garage website to learn more today.