Tips on donating car to charity

So, you've decided to donate your car to charity. That is a good thing to do as the charity can either use your vehicle for their own purposes or sell it and take the proceeds from the sale to fund its operation. Donating a car can be good for you too as you stand to enjoy a tax deduction if you itemize your federal tax return.

Donating a car isn't a slam dunk, however. Your desire to "do good" can have little to no impact on a charity or your tax position if you handle these steps incorrectly. Fortunately, there is a right way to donate a car and those tips we'll cover here.

1. Locate an eligible charity. Not all charities can handle car donations and for those that do they should be an IRS-approved 501(c)(3) organization. Visit IRS.gov and search for "Exempt Organizations Select Check" to find out if a charity is listed. If it is not, then you won't be able to claim a tax deduction. You can still make a donation without the tax benefit, however.

2. Donate directly. You can do the most good by donating your car directly to a charity, avoiding a middleman. When working through a middleman, he'll take a significant chunk of the proceeds from the sale and pass the rest on to the charity. By working directly with charities that accept donations, you can maximize the benefit they receive from your donation.

3. Deliver it yourself. If possible, plan to deliver your vehicle directly to the charity. That way the cost of a towing service will not diminish what the charity receives for the vehicle upon its sale to another party.

4. Complete the transfer of the title. Ensure that your vehicle's title is transferred properly. Fill out all DMV forms and retitle the car to the charity. Notify the DMV of its transfer to avoid possible problems later on including parking tickets. Contact your auto insurer to cancel coverage once the transfer has been completed.

5. Your tax deduction. If the charity keeps the car for internal use, then find out its fair market value by using trusted sources such as Kelley Blue Book to determine what that amount is. If the vehicle is sold, then you'll need to get a receipt from the charity with the amount the charity made. You'll file IRS form 8283 with your tax return, but if your car was worth more than $5,000 you'll need to get an independent appraisal and attach that document with your tax return.

Considerations

If a charity doesn't accept donated vehicles and you still want to help out, consider selling the car yourself and taking the proceeds from that sale and donating it to the charity. Yes, this can be a bit of a hassle, but you'll likely get a better price for the car and be able to take a larger tax deduction.