May 30, 2017

How to Donate a Junk Car

This how-to will guide you through the process of donating your junk car, in five easy steps. Your car (or motorcycle, boat, RV, etc.) has served you well, but its time has come. Selling it may be too much trouble, or take too much time. You checked with Carmax and other dealers and they’re not interested, or only offer you $500 for it, which you figure is not enough. After all, if someone gets a lot of money from your old car it should be you, or a charity you want to support, not a car dealer. The signs around your city offer $100 or $150 for your junk car, which is likely far less than what those services will get for the parts they’ll strip off your car. So, you decide to donate your car, but how does one donate a junk car?

If your car looks like this, don’t expect to be able to get a charitable donation deduction for donating it. This image, from Wikimedia Commons was released to the public domain by user TwoWings. A full resolution version is available at http://upload.wikimedia.org/wikipedia/commons/8/86/Car-Oradour.JPG.

Years ago you could call up a charity that had an arrangement with a towing company. They’d tow your car away and leave you a blank donation receipt. Back then you could deduct whatever you felt was fair market value for the car. Audits were rare, documentation requirements minimal, and many people took advantage of this loophole to deduct far more than they should have. It took a while, but finally Uncle Sam wised up and put in strict new guidelines. Now you’ll need from the charity a written acknowledgment with the following information [1]:

  • Your name and taxpayer ID (e.g. Social Security number).
  • The donated vehicle ID number (VIN).
  • The date on which you donated the vehicle.
  • Depending on the situation, a statement that you didn’t receive any goods or services in return for the donation, a description of any goods and/or services you received and a good faith estimate of their value, or that you only received intangible religious benefits, whichever is the case.

Given the new reality, here are the five steps you’ll need to follow.

Step 1: Verify You Can Get the Charitable Deduction

You must be filing a tax return for the year in which you donate the car, you must itemize your deductions on a 1040 Schedule A (i.e. you cannot take the standard deduction), and you must be reporting sufficient income that you can take advantage of the deduction you’re expecting to get. For example, the deduction can’t exceed 50% of your Adjusted Gross Income [1]. If any of these requirements is not met this year, you may need to put off the donation to next tax year in the hope things change.

Another requirement is that the vehicle you’re planning to donate is a “qualified vehicle” in the eyes of the IRS. According to the IRS “A qualified vehicle is any motor vehicle manufactured primarily for use on public streets, roads, and highways; a boat; or an airplane. However, a vehicle held by you primarily for sale to customers, such as inventory of a vehicle dealer, is not a qualified vehicle” [1].

Step 2: Choose the Charity You’ll Donate Your Junk Car to

While there’s any number of charities that will take your junk car off your hands as a charitable donation, many have arrangements with for-profit brokers such as towing companies, who may only give the charity a small set fee for most junk car donations, and pocket the bulk of the proceeds [2].

This may be more of a problem with small local charities. You should be able to do better with national charities such as Good Will [3], the National Kidney Foundation, which has already received over 685,000 donated cars, with over 100 more cars donated daily [4], or the Salvation Army, which states it will sell your car at a special Salvation Army auction likely to bring in much more than regular car auctions, increasing the value of your donation [5]. If you’re an avid National Public Radio supporter, some NPR stations accept vehicle donations [6].

Make sure to ask the charity what fraction of the value of your junk car will end up benefiting them. If your junk car is in running condition and the charity plans to use it themselves, or provide it at substantial discount to a needy individual, so much the better from your perspective, as that may provide you with a larger deduction [7] (see also Step 4 below).

If your charity doesn’t accept vehicle donations, you may still be able to benefit them by donating through another charity such as Cars 4 Charities [10] if they’re included a list of over 1000 charities they work with. This organization states they provide an (almost entirely) online car donation process, free car pickup nation-wide, and a guarantee that 100% of the net proceeds from selling your donated junk car (net of their low administrative costs) will go to the charity of your choice. The list of charities includes such worthy causes as the Susan G. Komen for the Cure, which claims 84% of donations are used for their cause [11]. Since Cars 4 Charities is a 501(c)(3) charity themselves, they can provide you the needed paperwork for taking the charitable deduction.

Step 3: Verify the Charity is Qualified

The IRS has a list of qualified charities, though not all charities are listed there. For example, churches, synagogues, mosques, etc. are not required to file for exempt status [8]. You could also call the IRS Customer Account Services Division for Tax Exempt and Government Entities [9]. It would be helpful if you know the name and address of the charity you’re planning to donate your junk car to.

Step 4: Establish the Deduction Value of Your Junk Car Donation

The value of the tax deduction you can claim for donating your junk car depends on what the charity does with the vehicle. While the general rule is that you can deduct at most the gross proceeds from the charity’s sale of you donated junk car, there are a few exceptions. In any of these specific cases, you may be able to claim the vehicle’s “fair market value” at the time of its donation, which you will need to determine and document. The IRS defines a vehicle’s fair market value as: “the price a willing buyer would pay and a willing seller would accept for the vehicle, when neither party is compelled to buy or sell, and both parties have reasonable knowledge of the relevant facts” [1].

The first exception is if the charity plans to make substantial use of the vehicle, which will reduce its value. For this exception the acknowledgement you receive from the charity will need to document in detail the intended use, its duration, and a certification they will not sell the vehicle before completing the detailed use.

Another possibility is if the charity plans to make a major repair or in some other way significantly enhance the value of the vehicle before selling it. In this case, you’ll need the charity to state what the improvement planned is, and certify they will not sell the vehicle prior to completing the planned improvement.

A third exception is if they plan to sell the vehicle to a needy individual at significantly below market value (or give it free of charge). This exception requires that the gift or discounted sale be “in direct furtherance of the charity’s charitable purpose of relieving the poor and distressed or the underprivileged who are in need of a means of transportation” [1]. Merely selling the vehicle and giving the proceeds to that needy individual is not sufficient basis for this exclusion.

If the charity sells your junk car, your deduction is limited to their gross proceeds from that sale. If the acknowledgement you receive from the charity does not provide all the information required by the IRS your deduction is limited to the lesser of $500 or the gross proceeds from the sale of the donated vehicle. For deductions above $500, in addition to the above-mentioned information, the acknowledgement should include the following: “A statement certifying that the vehicle was sold in an arm’s length transaction between unrelated parties, the date the vehicle was sold, the gross proceeds received from the sale, and a statement that your deduction may not exceed the gross proceeds from the sale” [1].

If one of the above exceptions applies, or if the value of the vehicle is under $500, you may use a pricing guide such as Kelley Blue Book [12] or Edmunds.com [13]. In this case you should make sure to use the private sale value of a car of the same make, model, options, accessories, year, mileage, and condition as the car you donated, in your region of the country. If claiming fair market value rather than actual proceeds of sale, it’s a good idea to take photos of the vehicle exterior, interior, engine, etc. prior to donating it so you can establish its condition.

Step 5: File Form 8283 with Your Tax Return for Deductions over $500

For deductions over $500 and up to $5000 you will need to complete part A of the form, while for deductions above $5000 you’ll need to complete part B. The latter will require the signature of an authorized official of the charity. If the deduction is more than the gross proceeds of the sale of your donated vehicle (e.g. due to one of the exceptions above) you’ll also need to get a written appraisal of your vehicle from a qualified appraiser, made no more than 60 days prior to the date of donation [1]. There are additional requirements for such high deductions, listed in IRS publications, but these are beyond the scope of this article.

Disclaimer:

This article is intended for informational and entertainment purposes only. For tax advice you should consult a qualified tax professional or the relevant IRS publications.

References:

[1] http://www.irs.gov/pub/irs-pdf/p4303.pdf [2] http://www.businessweek.com/1999/99_10/b3619131.htm [3] http://www.gwcars.org/donate-now/ [4] http://www.kidney.org/support/kidneycars/index.cfm [5] E.g. http://www.use.salvationarmy.org/use/www_use.nsf and click on the ”Car Donations” link; or call 1-800-728-7825. [6] E.g. http://wamu.org/support/membership/car_donation/ [7] http://www.knowledgehound.com/khhow2s/junk_cars.htm [8] www.irs.gov/eo (look under “Search for Charities”). [9] Toll free at 877-829-5500. [10] http://www.cars4charities.org/ [11] http://www.komen.org [12] http://www.kbb.com/used-cars [13] www.edmunds.com

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