How The Amount Of Your Vehicle Donation is Determined

A vehicle donation can be a great way to get a deduction on your taxes. Thanks to new tax law that went into effect in January 2005, the IRS has simplified the process by taking the guesswork out of determining the value of your vehicle.

As of January 2005, you may deduct the full price we receive for the sale of your vehicle. This greatly simplifies the process for you, the donor, because you no longer have to research and come up with an estimate of the fair market value of the vehicle.

This also eliminates the risk of you getting into trouble by overstating the value of your deduction on your tax return. You’ll know exactly the amount you may deduct, eliminating guesswork. This saves you both time and risk.

The IRS allows you, the taxpayer, to claim a tax deduction of

• a) The value of your vehicle up to $500 or
• b) If we sell the vehicle for more than $500, we will mail you a notification stating the exact amount for which it sold, which is the value you state for your tax purposes.
• c) Fair market value in some cases for certain vehicles. For example, late model cars or vans that end up being used to further the work of our charity OR vehicles on which we make a significant material improvement such as a major repair, before selling it. ( * See more on this option below.)

In any case, you will receive a receipt at the time that your vehicle is picked up.

Assuming that we sell your vehicle for more than $500, we will then mail you a notification stating that value for your tax purposes. So for any vehicle sold for more than $500, the exact amount it is sold for will be stated on your notification mailed to you, which in turn will be your tax deduction.

Please feel free to contact our Car Donation department at Family Care Foundation at 1-800-992-2383 with any questions you may have.

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* Excerpt from IRS publication 4302, A Charity’s Guide to Car Donations:

“If a charity intends to make significant intervening use of or materially improve the car, the donor generally can deduct its fair market value.

“Significant intervening use means that a charity must actually use the car to substantially further its regularly conducted activities, and the use must be considerable. There is no significant intervening use if the charity’s use is incidental or not intended at the time of the contribution.

“Material improvement includes a major repair or improvement that results in a significant increase in the car’s value. Cleaning, minor repairs, and routine maintenance are not material improvements.

“The charity must provide the donor with a contemporaneous written acknowledgement of the donation. Without an acknowledgement, the donor cannot deduct the contribution.”
(end of excerpt from IRS publication 4302, A Charity’s Guide to Car Donations)

Contributions of Property and Fair Market Value:

If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value of the property at the time of the contribution. Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. (From Itemized Deductions/Standard Deductions)

Determining Fair Market Value:

Cars, boats, and aircraft: If you contribute a car, boat, or aircraft to a charitable organization, you must determine its fair market value.

Certain commercial firms and trade organizations publish guides, commonly called "blue books," containing complete dealer sale prices or dealer average prices for recent model years. The guides may be published monthly or seasonally, and for different regions of the country. These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. The prices are not "official" and these publications are not considered an appraisal of any specific donated property. But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area.

Example. You donate your car to a local high school for use by their students studying automobile repair. Your credit union told you that the "blue book" value of the car is $1,600. However, your car needs extensive repairs and, after some checking, you find that you could sell it for for $750. You can deduct $750, the true fair market value of the car, as a charitable contribution. 

4 Ways to Get Cash for Your Car Donation

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Find the relevant form. A tax deduction reduces the amount of your taxable income, thereby lowering the total amount of taxes you pay, making you cash. The charitable donation deduction on your federal income tax return is located on Internal Revenue Service (“IRS”) Form 1040 Schedule A - Itemized Deductions (“Schedule A”).^[1]

• You may itemize deductions on Schedule A or take your standard deduction.
• Taxpayers should normally take whichever amount is higher.

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   Determine if you are eligible to take a tax deduction for donating your car to charity. To determine if you are eligible to take a tax deduction:
• Complete Schedule A. Read the Schedule A Instructions and follow them carefully. If you need assistance with this, you can contact a licensed tax attorney, certified public accountant (“CPA”) or IRS Enrolled Agent for help.
• Compare the total itemized deduction amount on Schedule A line 29 to your standard deduction amount, located on IRS Form 1040 (“Form 1040), page 2, in the left margin.^[2]
• If the amount on Schedule A is higher than your standard deduction, you are eligible to take a tax deduction for donating your car to charity.

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   If you are eligible for a tax deduction, make a list of all local charities. Find nearby charities:
   • Look in your phone book. Check the Yellow Pages under ‘Charitable Organizations’ for a listing of local charities.
   • Do an online search. Use your favorite search engine to search ‘charitable organizations’ or ‘charities’ and then narrow the search to your local area by including your location, for example “charitable organizations” and “Indianapolis”.
   • Use a charity guide or database. Several organizations offer searchable databases of charitable organizations. For example, Charity Navigator,^[3] Charity Watch,^[4] and America’s Charities^[5] are three good places to start your search.

How to Donate a Vehicle: 5 Steps (with Pictures)

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Verify that the recipient is a charity. Make sure the organization is a registered 501(c)(3) charity or a qualified religious organization that can legally accept your donation from which you can rightfully claim a tax reduction. It is also advisable to find a charity that accepts vehicles without charging a removal fee.

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   Use the Kelley Blue Book or IRS Publications 526 ("Charitable Donations") and 561 ("Determining the Value of Donated Property) to determine the fair market value of your car. If it's worth $5,000 or more, have the car appraised by someone certified. If you donate a car to a qualified organization after December 31, 2004, your deduction is limited to the gross proceeds from its sale by the organization. This rule applies if the claimed value of the donated vehicle is more than $500. However, if the organization makes significant intervening use of or materially improves the car, you generally can deduct its fair market value.

Car Donation to Charity

It is hard to let go of a beloved old car that is beyond even a trade-in. Sending it right to the junk yard can be heart wrenching. Making a car donation to a worthy charity seems like a good move, but, unfortunately, car donation is an area of charity that is rife with fraud and misleading information.

The ads that you see everywhere that offer to help you make a car donation to charity are almost always rip-offs. In most cases, these are middle-men who give only a fraction of the car donation worth to the charity. Car donation middle-men are not required by the IRS to contribute a certain amount of the auto's proceeds to a charity. The amount the charity receives from a car donation is negotiated by the charity and the middle-man.

No matter what celebrity promotes these car donation programs, do not use them for your car donation unless you can verify that the car donation agency gives a significant percentage of the proceeds from your car donation to the charity. If you are going to do that kind of research, you might just as well use that time to find a charity that can take your car donation directly. Ask your favorite charities first...they may have a car donation program.

Instead of calling the first telephone number you see on a billboard for car donation, follow these steps to make a car donation to charity.

Rules of the Road for Your Car Donation to Charity

1. Find a charity in your local area that will accept your car donation directly. This will require some research, but you will feel ever so much better when you find a worthy group that will benefit directly from your car donation.
   
   Make sure that the charity you choose for your car donation is a 501(c)(3) organization. These are the only nonprofit groups that can provide a tax deduction for your donation. Check the organization's website for proof of its charitable status, look it up on the Better Business Bureau's nonprofit list, or check it out on Charity Navigator, an organization that rates nonprofits across the country.
2. If possible, deliver your car donation to the charity yourself. A charity will have to pay someone to pick it up. Save them that expense by driving the car directly to the charity. Make arrangements with the charity first, of course, so that the proper paperwork for your car donation can be prepared.
3. Protect yourself from future liabilities that could result from a car donation. There are some sad cases of people making a car donation and then being held liable when that car was later in an accident. Make sure that the title is transferred properly to the charity. Check with your state's Department of Motor Vehicles about how to do this properly. Never leave a blank space on the title for someone else to fill in. Do not leave the ownership space on the charity car donation papers blank. If the charity asks you to do that, find another organization.
4. Understand the IRS rules for your car donation. First, a tax deduction is only available for your car donation if you itemize your deductions. An estimate of the value of your vehicle will not pass muster at tax time. Since most cars (or boats) donated to charity are resold, you must know the resale price of your car donation for your tax records, if the car or boat is worth more than $500. Make sure that the charity sends you this record.
   
   If the charity keeps the car or boat and uses it in its charitable work, or if your car is worth less than $500, then you can report its "fair market value" (FMV).
   
   Making a car donation to an organization that has as its mission to provide low cost vehicles to low-income buyers also allows the donor to deduct the car's fair market value or $500, whichever is less. You can use a resource such as Edmunds' FMV Used Vehicle Appraiser to determine the FMV, which depends on what a used car sells for in your geographic vicinity. The FMV may be lower than the so called "blue book" value.
5. Keep a paper trail of your car donation. If your vehicle or boat donation is worth more than $500, attach IRS Form 8283 to your tax return. If it’s worth more than $5,000, you must include an outside appraisal. Proof of the donation, such as a receipt from the charity, is also required by the IRS and a copy of the title change.
   You can get more information from IRS Publication 4303, "A Donor’s Guide to Car Donations."

Even though making a car donation to a charity might seem like more work than it is worth, do make the effort. Do it in the name of that car that served you well, and to help out a worthy cause. Making a car donation to charity really is a better alternative than a direct trip to the junk heap.

Some charities that accept a car donation directly or through reputable car donation agencies include: