You’ve probably seen the ads: Donate your old car to charity, help out a good cause and get a tax write-off. It sounds simple, but experts say consumers must do their research before handing over the keys so they don’t get taken for a ride.
If you want to get an unwanted vehicle off your hands while helping families, kids or animals in need, here are five steps you can take to ensure your donation does as much good as possible.
1. Donate directly to a charity.The ideal way to donate a car is to find an organization that can use the vehicle in their programs, Meals on Wheels might use the vehicle to deliver food, a local senior center might use it to drive patients to doctor appointments, or a vocational school might use it to teach students how to fix cars.
Going this route offers two benefits: You might be able to get a bigger income tax deduction.
2. Cut out the middleman.
Steer clear of third-party groups that aggressively advertise car donation programs, experts warn. Middlemen often end up keeping large chunk of the proceeds from the car sale, says Sandra Miniutti, vice president of marketing for Charity Navigator, a nonprofit charity evaluator. In fact, a report by the U.S. General Accounting Office reveals that many donated cars are sold cheaply at auction by these third-party groups. After advertising, administrative and towing expenses are deducted, a charity could get as little as $25.
So, even if you can’t find a charity that will use your car in its programs, you might be able to find one that will accept it and sell it directly. You can start by calling your favorite local charities, or even the United Way, which might be able to refer you to an organization in need.
“It’s going to take a little bit of legwork,” Miniutti says.
3. Make sure the organization has a good reputation.
Check out the charity, just the same as if you were donating money to a nonprofit. First, make sure the group is a 501(c) (3) organization so that your donation is tax-deductible. (You can search the IRSwebsite to find out.)
Second, check the charity’s track record at the Better Business Bureau or through the government agency that registers charities in your state, usually either the attorney general or secretary of state. Also, organizations such as GuideStar, CharityWatch and Charity Navigator rate nonprofits based on a variety of factors, such as transparency and expenses.
An example: CharityWatch warns donors that a charity operating as Kars4Kids has been disciplined by several state attorneys general for not openly disclosing that money from car sales goes to support an Orthodox Jewish religious group. The organization, which has raised millions of dollars through catchy radio ads, also had to pay a $65,000 fine in Oregon for not telling donors that the “free vacation” they were promised actually was a timeshare recruitment tool, meaning the car donors sat through a presentation designed to get them to buy a vacation timeshare.
At the time, a spokesman defended Kars4Kids, saying the group simply hadn’t had time in its ads to give full details. On its website, Kars4Kids says donors can choose whether to attend a timeshare presentation during a free two-night hotel stay in a U.S. city. The website says the vacation voucher is offered by a third party and any complaints “will be forwarded to the third party.”
4. Transfer the car properly.
Before you part with your car, the Better Business Bureau recommends you snap a photo of the vehicle for your records. When it’s time to actually hand the car over, make sure the title is transferred from your name to the charity, Borochoff says. That’s because if you unknowingly give your car to a scam artist or even a less-than-responsible charity that keeps the title in your name, it could cause trouble for you down the road.
“Some donors have gotten involved in scary, nightmare situations where their car was involved in a crime or accident and then they’re held responsible,” Borochoff says. “Even just somebody who racks up a lot of traffic tickets could cause you problems.”
It’s also important to notify your car insurance company of the donation right when you relinquish the title, says Brian Rauber, a Farmers Insurance agent in Missouri. At that point, the company will cancel the policy.
5. Know the tax rules for car donation.
The IRS imposes strict rules about the amount you can deduct on your federal income taxes for donating a car, as well as the documentation required. You’ll need to get a letter from the charity explaining its intended use for the car or, if the charity sold it, the amount of money received.
The amount you can deduct depends on whether the organization plans to use your car in its daily operations – in which case you might be able to deduct fair market value of the car – or if the nonprofit sells it.
The IRS outlines what you can deduct in its guide to taxes and car donations. Be careful how you value your donated car on your tax return, Miniutti says, as the IRS scrutinizes car donations closely and any red flags could lead to an audit.
Finally, if you don’t want to go through the hassle of finding a reputable charity that will accept your car, consider selling the car yourself and donating the money,.