Friday, January 4, 2008

WHAT YOU NEED TO KNOW BEFORE DONATING A VEHICLE TO CHARITY

I have seen a lot of ads lately that entice you to donate your car to a charity and get a tax deduction. I thought I would discuss some important things you need to know before deciding to do so.

First and foremost – you will get no tax benefit from donating your personal automobile to charity unless you can itemize on Schedule A! While the donation itself can put you over the top and cause you to be able to itemize, to get the maximum tax benefit you must be able to itemize without the car donation.

Second, the amount you receive “in your pocket” will be only a small percentage of the car’s value. The amount of cash you will realize depends on your federal and, if your state allows a similar tax deduction (New Jersey does not), state tax bracket. If the allowable deduction is $1,000.00 a New Jersey resident may only realize $150.00 or $250.00 “in pocket”.

Plus you have to wait to file your tax return to get the money. If you donate a car to charity today you will not see the cash until at least next February – more than a year later.

You will realize more cash in hand, and get it immediately, if you actually sell the car yourself or if you use the car as a trade-in for a new vehicle purchase. Of course selling the car yourself involves a lot of work and potential agita and aggravation, as well as additional expenses for advertising – so if you are not going to trade the car in on a new purchase it may be worthwhile to give the car to charity just to get rid of it quickly and easily. The charity will usually arrange to pick up the donated vehicle from your location.

Don’t think you can donate a clunker that has been sitting up on cement blocks in your yard for the past year and get a substantial tax deduction. Congress suspected that there was a lot of abuse in with this tax deduction and passed new, more strict rules for claiming a deduction a few years ago.

In most cases when you donate a car to a charity the charity will turn around and sell the car in auction to get the cash. In such a case your tax deduction is limited to the gross proceeds from the sale. If the charity sells the car for $850.00 you can deduct $850.00 on your tax return, regardless of the “blue book value” of the car.

You can deduct the “fair market value” of the car on the date of the donation if the charity intends to temporarily or permanently use the car in its operations, if it intends to make "material" improvements to the vehicle before selling it, or it intends to sell the car to a "needy" individual at a price that is significantly below "fair market value" or give the car to such an individual. You can go to the website for the Kelley Blue Book and look up the "private party value" for the vehicle based on the mileage and condition.

In any case when you donate a vehicle to charity you will receive a Form 1098-C from the charity. The Form 1098-C will include the name and Taxpayer Identification Number of the charity, the vehicle identification number of the auto donated, the date of contribution, and information on what was done with the vehicle.

(1) If the charity sells the car without significant interim use or material improvement, the Form 1098-C will include the date the vehicle was sold by the charity, certification that the sale was an "arm's length" transaction among unrelated parties, and the gross proceeds from the sale.

(2) If the charity intends to temporarily or permanently use the car in its operations, or if it intends to make "material" improvements to the vehicle before selling it, the Form 1098-C will include a certification and description of either the significant interim use and intended duration of such use or the intended material improvement and a certification that the vehicle will not be sold before such use or improvement is completed.

(3) If the charity intends to sell the car to a "needy" individual at a price that is significantly below "fair market value", or give the car to such an individual, the Form 1098-C will include a certification that the charity will make such a sale or transfer of the vehicle, and that the sale or transfer will be in direct furtherance of the organization's charitable purpose of relieving the poor and distressed or the underprivileged who are in need of a means of transportation.

Form 1098-C must be issued within 30 days of either the date of the contribution or the date of the disposition of the vehicle by the charity. You must attach Copy B of the IRS Form 1098-C to your Form 1040. If you donated a car to charity in 2007 and you have not received a Form 1098-C from the charity check out my posting “Did You Donate Your Car to Charity in 2007?”.

I believe that if you want to donate your car to charity you should stick with the well-established organizations, like the Salvation Army, the American Cancer Society, American Diabetes Association, ASPCA, etc. I would stay away from a charity that you have never heard of before. You can check out the status of a charity online at
www.charitynavigator.org.

Any questions?

TTFN

3 comments:

Cheryl said...

a question - can we deduct the expenses incurred to drive the vehicle to a charity organization in another state?

Robert D Flach said...

Cheryl-

A very good question.

IRS Publication 526 says – “You can deduct unreimbursed out-of-pocket expenses, such as the cost of gas and oil, that are directly related to the use of your car in giving services to a charitable organization.”

I do believe that transporting a donation to the charity’s location would be providing a service to the charitable organization.

The standard mileage allowance for charitable driving is 14 cents per mile. Unlike the other standard mileage amounts, this is set my Congress and has remained unchanged for quite a while now.

TWTP

donate car said...

Great info that we need to know before donating a car to charity. Also, we make sure that the organization is a IRS 501-C3 charity.