It’s a New Year’s resolution for your faithful old car: Start the new year by donating your vehicle to charity. If you’ve been driving your car so long that its trade-in value is next to the nothing, it may make more sense to use it as a tax write-off rather than as a down payment. Or you may like the idea of donating it to a group that can get it to someone who urgently needs an affordable set of wheels.
The red tape
There’s a small amount of red tape involved in writing off your donation on your income taxes. In order to claim your donation as a charitable deduction, you must itemize deductions on your tax return. If you don’t, your donation won’t provide a tax boost for you. Also, the charity you donate your vehicle to must be approved by the IRS as a 501(c)(3) tax-exempt organization. Visit the IRS website to be sure your recipient qualifies. Additionally, you’ll want to consult a qualified tax advisor to determine any possible tax benefit(s).
The other point to remember is that you can’t deduct just any old amount you’ve guesstimated your vehicle might be worth. IRS rules only permit you to deduct the amount shown on the receipt the charity sends you after selling your car at auction.
But what if the charity doesn’t sell your vehicle? If the charity keeps your car to use, if they make improvements to the vehicle before selling it, if they sell it at a discount to a low-income buyer, or if the car itself is worth less than $500, then you can only deduct the vehicle’s fair market value.
To determine fair market value, you need to consult a pricing guide. “If you use a vehicle pricing guide to determine fair market value, be sure that the sales price listed is for a vehicle that is the same make, model and year, sold in the same condition, and with the same or substantially similar options or accessories as your vehicle,” explains IRS Publication 4303.
If this all sounds like too much of a hassle, you can always take the easy route and sell the car yourself—then donate the cash you made from the transaction directly to a charity of your choosing.
Where to donate your car
Car donations generate charitable results in different ways. Some charities help connect your car with a driver in need, while others sell donated cars at auction and use the money for good causes. Some groups will tow your vehicle in at no cost (although it’s helpful to everyone involved if you can drive it in yourself). Look for a group that uses your donation in a way that makes you feel good about where the money goes.
No matter which direction you head, avoid intermediary agencies. Even reputable ones take up to 50 percent of the proceeds of your donation to cover their costs, and unscrupulous organizations could snatch as much as 90 percent of your donation’s value.
Protect the value of your donation by choosing a reputable charity like Make a Wish’s Wheels for Wishes, the American Red Cross, The Salvation Army, or the American Cancer Society’s Cars For a Cure. Or, search the intranet to find local charities that could use your old vehicle.
And finally, consider keeping your donation in the military family by choosing a military or veterans organization that accepts vehicle donations. Your old faithful vehicle could give a fellow service member or veteran just the boost they need in 2017. It’s a great way to share your good fortune with those who serve our country and communities.
Out with the old and in with the new
Donating your car to charity can be a rewarding way to begin a new year. And if one of your New Year’s resolutions also includes finally getting serious about retiring your old set of wheels and purchasing something newer—then make PenFed your first stop before you shop.
PenFed offers competitive rates on auto financing for new and used vehicles. And if you’d prefer to shop for your next car, SUV or truck online, try the PenFed Car Buying Service. The service allows you to search and sort for vehicles by the features you’re looking for, double-check that you’re not overpaying for the car and features you want, and then helps you secure the deal.
Happy New Year!