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Across the nation, an increasing number of charities have turned to car-donation programs in recent years as an effective way to raise money. And these programs, if well managed by the charity, can offer significant benefits for the exempt organization and the taxpayer.

If you are considering donating a car to charity, there are a few aspects of the process you should be familiar with. As a tax deduction, donating a car may or may not make good financial sense. However, if you are truly interested in being charitable, then the tax deduction merely comes as an added bonus. Before donating a car, make sure you are dealing with a reputable donation service or qualified charity.

Choose the Qualified Organization:
Taxpayers must make certain that they contribute their car to an eligible organization; otherwise, their donation will not be tax deductible. Be sure to have the organization’s correct name and its headquarters location, if possible. Churches, synagogues, temples, mosques and governments are not required to apply for this exemption in order to be qualified.

Calculate the real Market Value of your Car:

The donor must take many factors into consideration to establish the value of the car. Many used-car buying guides contain step-by-step instructions so that readers can make adjustments to the value of a car for accessories, mileage and other indicators of its general condition.

Direct Communication with charity:

Many donors also want to make sure their contribution is used for the charitable purpose they intend. The Internal Revenue Services (IRS) Donating an Old Car urges donors to ask whether those soliciting the car donation are officials of the charity itself or private fundraiser acting on the charity's behalf. If it is a private fundraiser, what will it do with the vehicle? Will the car be fixed up and given to the poor and needy? Or will it be resold?

Deduct Only the Car’s Fair Market Value:

Some car donation program operators have mistakenly claimed that donors can take the full “Blue Book’’ value of their car for a deduction. The IRS, however, will only allow a deduction for the fair market value of the car. Fair market value takes into account many factors, including the vehicle’s condition. The fair market value of the taxpayer’s car may be substantially different from the “Blue Book” value.

Document the Charitable Contribution Deduction:

For vehicle donations, taxpayers must document the car donation and its fair market value. Recordkeeping requirements are comprehensive and vary depending on the amount of the contribution and the total amount of the charitable deduction.

Though donating a car may seem difficult, it is actually quite simple. The charity or donation service should be adept at answering your questions and make it easy to complete the process. They will even arrange for pickup through a towing company in your area.

In most cases, people donate vehicles to avoid the hassles of trying to sell or trade an old car or truck. If your vehicle is not running, you aren’t likely to get any value from selling or trading it, but many charities accept such vehicles, and you can take the tax deduction. Donating a car is fairly simple, a worthwhile cause, and may benefit you more on your tax return than selling or junking it. For specific information regarding tax laws, you can obtain a guide from the IRS online.

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