Do you have a used car just sitting in your driveway and collecting dust? Do you want to give to a good cause? While these two questions may seem unrelated, donating your used car to a charity can save you money at tax time. Even better, your donation can do some good in your community.
Before you head out to donate your car in Massachusetts, there are some items to consider. By following these tips, you can be better prepared for giving your car to charity the right way.
How will the donation be used?
When searching for an organization, you should find out how the car will be used. For situations where the vehicle will be used by the charity or given to a person in need, the tax deduction will be based on the fair market value of your car. If they decide to sell the car instead, the deduction amount will be based on the amount they receive after the sale.
In the case of selling the car, many organizations may team up with a third party to handle the sale. These businesses will manage the sale of the vehicle and even pick up the car in some cases. You should ask to know what percentage the charitable organization will receive to see if the donation would help them.
Check the tax status of the organization
To receive a tax deduction for your donation, the organization has to be registered as a 501(c)(3) organization/nonprofit.* Instances where they don’t have to register as a nonprofit include governments, churches, mosques, synagogues, and temples. For other nonprofit organizations in Massachusetts, you can contact the Public Charities Division or the IRS Tax Exempt/Government Entities department.
Document your vehicle
How much is your car worth? In general, if your vehicle is worth more than $5,000, you need to have the vehicle appraised by an independent appraiser. Get this value in writing and make sure to fill out IRS Form 8283 at tax time.
Once you donate your vehicle to a charitable organization, have them provide a written acknowledgment of the donation and a receipt as well. If they sell the car, you should also receive a receipt for the sale. Having more documentation at tax time can save on headaches later if you’re audited.
For vehicles valued below $5,000, you can determine the value using sources like Kelley Blue Book, National Auto Dealers Association guide, or the Hearst Black Book. A word of caution with this method–you will want to ensure that you’re accurately using the mileage, condition, and date of purchase for your vehicle. You should also take photographs of the odometer and car for extra documentation.
What other information should you gather? In addition to the previous information, you should keep a record of the name and address of the organization, along with recording when your vehicle was picked up. You should also have records of when and how you obtained your vehicle backed up by documents such as your title, registration, and receipt copies.
What can be donated?
Massachusetts has an active boating community, and some charities will accept your boat as a donation. Other vehicles can include RVs and motorcycles as well. If you have a broken down car, some charities will take those as well to either fix them up or sell them for parts to help benefit the organization’s mission.
While many charitable organizations offer free pickup services for your vehicle, it can often reduce the amount of donation they receive. If they will let you, and the car is operational, you can offer to drive it to them and drop it off to help them benefit more from your donation.
Finding the right charitable organization
How do you find the right charities to donate to? You can either start your search online or by contacting your local organizations. Ask them questions so that you can find the best fit for your donation. Many charities will be happy to talk about their group’s mission and how your donation can help them with their program. Some may even send you additional information so that you can make an informed decision.
Many for-profit websites and businesses offer to take your used vehicle and transfer the proceeds to your chosen organization. While many of these are reputable businesses, adding in a third party will lessen the benefit to charities. These businesses will generally deduct their costs for picking up your vehicle and processing the sale then will give a percentage to the charities. The process is relatively simple and straightforward, but you are generally better off contacting the charitable organization directly to help maximize your donation.
Donating your vehicle
Once you’ve located the right organization, you’ll want to sign over the title to them. This releases you from being liable for the donated car. If the vehicle was produced before 1980, Massachusetts doesn’t require you to have the title.
Talk with the organization to see who should be listed in the “buyers” section of the title. In most cases, this will be the organization’s name or the name of the third party agent.
Once the transfer is complete and you’ve received all of your documentation, all that’s left is tax time. You can feel better that you’ve helped out a charitable organization while getting rid of unwanted vehicles from your house at the same time.