Chicago, IL, December 16, 2008 - The holiday season is a time for giving and as we approach it, we often become more charitable. The solicitation of used vehicles has become an increasingly popular means of raising funds, especially for local or regional organizations. On the surface, it seems like a win-win situation for the donor and the charity: a convenient and easy way of disposing of an unwanted car while helping a cause. Before handing over those keys, however, there are some things that you should know.
The benefits of a donated car to a charity can vary quite considerably depending on the arrangements. In some cases, the full amount of the donation goes to the organization if the charity sells the car itself or uses the vehicle to help fulfill some program services need (for example, delivering meals to homebound individuals). If a third-party broker is involved, however, the charity may receive only a percentage of the resale price of the car (such as less than 20%) or it may receive a portion of what is left after all the expenses have been paid by the broker, which can result in even smaller amounts going to the charitable cause.
In some situations, the amount the charity receives from a third-party broker has no relationship to the re-sale price of the used car. The organization may receive a flat fee (such as $100 per used vehicle) or a monthly agreed upon amount (such as $2,000 per month) that is not dependent on the total dollar value of sales incurred by the used car fund raising company. Finding out the nature of the charity's financial relationship to the resale of the car is important, since a flat fee situation may result in making your used car donation ineligible for a tax deduction.
In order to be eligible for a tax deduction for donating a car, boat or other vehicle, there are a number of other things you should keep in mind. First, verify that the recipient organization is tax exempt as a charity under section 501(c)(3) of the Internal Revenue Code. To verify if a charity is eligible to receive contributions deductible as charitable gifts, you can do one or more of the following. Check if the organization is listed in IRS Publication 78, this Cumulative List of Organizations, which is likely to be available at most large public libraries. Visit the online version of IRS Publication 78 http://www.irs.gov/app/pub-78/. You can also ask the organization for a copy of its tax exempt status determination letter. (Note that churches are not required to apply for exempt status, and may not have such a letter or be included in the mentioned IRS publication. A car donation to a church, however, would still be deductible.)
Donors who want to make wise giving decisions are urged to check on an organization prior to deciding whether to donate a vehicle to them. The following tips are designed to help donors make smart and beneficial giving decisions.
Vehicle Donation Checklist
· Check out the charity at www.bbb.org or www.give.org. Find out if the charity is properly registered with the government agency in your state that regulates charities (usually a division of the state's office of the attorney general).
· Verify that the recipient organization is tax exempt as a charity.
· Find out how the charity financially benefits from the resale of the car.
· If the car is worth more than $5,000, get a written professional appraisal.
· Make sure the title of the car is transferred to the charity's name and keep a copy of this record.
· For tax records, take a photo of the car and keep copies of current classified ads or guide value estimates for similar vehicles. (For more deductibility information, get a copy of IRS Publication 561, Determining the Value of Donated Property.)