A charity that uses a donated vehicle for transportation or hauling goods obviously benefits directly from such a donation. However, in many cases the cars will be sold en masse, either by the charity itself or by a dealer to raise funds for the charity. In the case of a dealer, the charity generally receives a flat fee per car, sometimes as little as $45 per car.
Listed below are AIP's tips to donors who would like to donate a car to charity. Legislation in 2004 limits the donor's tax deductions for car donations to the price at which the charity sold the car.
- Make sure the charity is eligible to receive tax deductible contributions. Ask for a copy for your records of the organization’s IRS letter of determination which verifies its tax exempt status.Be sure that you get a receipt from the charity for your car donation.
- Be aware that non-cash donations are one of the most common triggers to an audit by the IRS, so you’ll want to document the value of the car and keep records of it.
- If the car is worth more than $500, the donor must complete Section A of IRS Form 8283 and attach it to their tax return. Donors are required to file with his/her tax return a written acknowledgement from the charity. If the charity sells the car, the charity must provide the donor with a certification that the car was sold at "arms length" between unrelated parties and the sale price of the car within 30 days. In this case, the donor's tax deductions will be limited to the total amount the charity sold the car for. If the charity does not sell the car, it must provide the donor with a receipt within 30 days of the sale. The charity may also be required to provide certification to the donor stating how it plans to use or improve the car and stating that it promises not to sell or transfer the car. Penalties are imposed on charities that provide fraudulent acknowledgements to donors.
- If the car is worth $5,000 or more, an independent appraisal is necessary. The donor must also fill out Section B of IRS Form 8283. For cars worth less than $5,000, use the Kelley Blue Book, the Hearst Black Book, or a guide from the National Auto Dealers Association (NADA) to determine the market value. Make sure you use the correct figure for the date, mileage, and condition of your car. Picking the highest figure for your car model and year without taking into account other factors may not pass muster with the IRS.
- Take pictures of the car and save receipts for new tires or other upgrades to verify its value.
- remember, it is the donor, not the charity, who is obligated to value the car and who will pay the penalties if an IRS challenge finds your figure inaccurate.