It sounds so simple: donate your used vehicle or boat to charity, avoid the hassles associated with selling it and score a tax deduction at the same time.
Before you hand one of your biggest assets over to anyone, be sure you’re making the right moves:
Avoid middlemen. Numerous for-profit intermediary organizations that advertise aggressively on TV, billboards and elsewhere, offering to help you donate your vehicle to charity. These organizations typically keep about 50 percent to 90 percent of the vehicle’s value for themselves. Check directly with charities you admire and find out whether they accept car or boat donations.
Find a worthy charity. If the charities you normally support aren’t equipped to accept such donations, do some homework until you find a reputable charity. You can research charities track records online at the Better Business Bureau site and through Charity Navigator.
Check the math. If you still feel compelled to use an intermediary organization, at least ask the organization how much of the car or boat’s value will go to charity. If the organization simply gives charities flat fees, say, $100 for a used vehicle regardless of its value, or $2,000 a month, your donation may not be eligible for a tax deduction.
Know the status of your recipient. In order for you to qualify for a deduction, the charity that gets your donation must be an IRS-approved 501(c)(3) organization.
Do the delivery yourself. Once you’ve identified a worthy charity, recognize that it will have to pay someone to pick up your car or boat for you. To help the charity maximize the benefit of your donation, drop the car or boat off yourself.
Transfer the vehicle with care. Eliminate all risks of running up parking tickets and other violations after you’ve said goodbye to your donated vehicle? You should formally re-title the vehicle to the charity, and report the transfer to your state’s Department of Motor Vehicles or licensing. Never agree to leave the ownership space on the charity donation papers blank.
Your estimate of the donation’s value probably won’t cut it. If your car or boat is worth more than $500, the IRS is going to want to see evidence of how much the charity got for it. You’ll need to get a receipt from the charity revealing exactly how much money it made.
Know when you can report the fair market value. Get a value from listings like Kelley Blue Book or similar sources.
Keep a thorough paper trail. If your donation is worth more than $500, you’ll have to attach IRS Form 8283 to your tax return. If it’s worth more than $5,000, your documentation must include an outside appraisal.
Be detail-oriented. This may be one of the biggest charitable donations you ever make. Details will make the difference on your tax returns.
By taking the time to do this, you can make sure that the charity gets the most benefit and you get the biggest possible deduction.
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