In recent years, many drivers have considered donating an older car to charity after they purchase a newer model. The giving spirit may be especially prevalent around the holidays, but there are a few facts owners should be aware of before they take any action.
"Until 2005, donors could simply deduct the 'fair market value' of the vehicle, but today's rules are much more stringent, and it's nearly impossible to deduct the full market value," said Carroll Lachnit, the consumer advice editor for Edmunds.com. "Understanding the proper procedures can help donors get the most out of their deductions and, more importantly, avoid penalties if audited."
Here are some of the tidbits you should keep in mind before donating, according to Edmunds.com:
Save all of your information
Donating a vehicle is an action that will need to be reported on a tax return to receive a proper deduction. This could be difficult if you are unfamiliar with the process, so make sure you collect all of the paperwork and information regarding the donation and keep it in a safe place until it's tax time. There will likely be a lot of documentation needed, especially if you plan on claiming the donation on your tax return, so stay organized throughout the process. It's a good idea to get charity information and verification before donating as well.
Get a professional to help
Before donating a vehicle, you should probably take the car to an auto repair franchise so a professional can look at it. Not only does this ensure the automobile is safe for use - an essential quality if you're giving to a charity that will use the car - but the staff on hand may be able to provide you with advice as well. Their insight can let you know what type of auto repair the vehicle may need, the value it has and what kind of price qualifies as fair market value.
Think about alternatives
Although donating a car may be extremely helpful to certain organizations, there are ways you can aid groups that are near and dear to your heart. Consider selling a car separately and then donating the proceeds to a charity of your choice. While that may take a little more effort - and self restraint - it ensures you get maximum value for the vehicle. That is a major advantage for your chosen charity and your tax deduction.