So, lets say you’ve decided to buy a new car and are looking for the best way to unload your old one. The dealer’s not offering you any great favors and you don’t want the hassle of a private sale. What do you do?


Well, an increasing number of people have decided that the best thing to do is to donate their car to charity; partly for the ‘feel-good’, but mainly, let’s be honest here for the tax deduction. While this may appear to be a fairly philanthropic action, there’s more to it than meets the eye. It requires a bit of research into the financial viability of the act, doesn’t bring unwanted attention from your friends at the IRS and that the charity is legit.


The key factor is your tax bracket. If your 28% or higher and selling a decent set of wheels, you should do very well off it. However, if you’re at 15% and the car’s seen better days, you’ll be better off selling it, even at a loss. This is especially true for those using the standard deduction as opposed to itemized.

A simple trick: Complete a sample tax return with and without the donation value.


Of course, the increasing trend towards auto-donation has brought the IRS hounds a-sniffin’ – so you need to be fairly strict when determining the fair market value of the vehicle, which according to the IRS is: “The price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts." This may differ considerably from the ‘Blue Book’ value and overstatement may result in prosecution. Its always in your interest to research market values, allowing for mileage, general condition and service history; even location is a factor.


If your car is worth more than $500 (and lets face it, if its not, you shouldn’t be reading this) attach a completed IRS Form 8283 to your tax return. If its worth more than $5,000, you’ll also need an appraisal. One useful source for evaluating newer vehicles is Edmund’s True Market Value® used vehicle appraiser for vehicles post-1990 or The Kelly Blue Book website for post-1981 cars. Keep a copy of your value determination in case of an audit.


Verify that the particular charity can take deductibles. The organization needs to be able to provide an ‘IRS Determination Letter’ which indicates that the charity is tax exempt. Be careful with religious charities as they need to apply for special status. Should the IRS find that the charity is not legit, both parties could be penalized for tax fraud – so be wary and ask the right questions.


What happens to the cars?
Some charities use them for their business purposes, while others, quite legitimately sell them either directly or through an outside agency. There are some organizations that are actually for-profit, but pay charities a percentage of the value of each vehicle sold to use their names. Ifyou sell directly to these companies, you cannot claim a deduction.

Here again, you need to ask some careful questions of the charity: Will they be selling the car? Will they be utilizing a broker? Does the charity get a large amount of the sale price or simply a flat per-car fee?
If your intentions really are philanthropic and the charity will only receive 10% of the sales price, you can donate more by selling the vehicle and giving them 100% of the proceeds. You’d still get the same tax deduction and they’d do better off the deal