The new tax laws that was reinstated in 2005 allows the donor to claim the fair market value if the charity organization decides to use the car for their charity work. If your charity is using the car for charity purposes and not selling it, you can refer to the Consumer Reports Used Car Price Reports to find out the estimated fair market value. However, if the charity sells the car, you will get to deduct the tax that is a portion of the sale amount. For example, if your car worth $3,000 and the charity sells your car at the auction for $2,500, you get a tax deduction of $700 provided that your tax bracket is 28%. you will only be able to claim the tax deduction after the charity organization has already resell it.
You can check the IRS Publication 78 to see if the charity which you donate to is 501 (c)(3) organization approved. Before donating, you may want to ask the charity how much percentage of the donated value will go towards the charity causes. A recent survey shows that many charities only get about 5% from the car donation because they have to cover a lot of costs such as fund raising costs. If you need help in choosing a trustworthy charity, you can check the National Charity Reports Index at the Better Business Bureau site. The National Charity Reports Index rates the charity organizations based on 20 different accountability standards.
Donating a car to a charity organization is similar to selling your car. After you decided to donate the car, you must sign the title to the charity so that you won’t be liable to the buyer action. Another thing is that signing the title ensures that the car will be used for the designated charity purposes. You will also be required to cancel the car registration.
The steps for donating the car to the charity organization vary across the different states. You can ask the charity how they will handle your car donation. Most charities will send a tow truck to your place to pick up the vehicle. You must make sure that the tow truck is licensed and carry an adequate insurance. The charity must appoint a licensed dealer to transfer the donated vehicle.
It is advised that you avoid companies that promise they will send some of the proceeds from the same of your donated car to a charity but that they do not have any form of relationship with the charity. Not every charity organization will operate as how the donor wishes so you must be careful when selecting a charity to donate your car.
