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Donate A Car -- The Right Way

More than a million Americans donate cars to charities every year.

December is decision time. Donations must be made by Dec. 31 for you to make use of any tax benefit next April. A little planning will not only mean a greater tax deduction but a better chance your old car will be put to good use. It also means you have the time to properly sever your car insurance and registration.

Select an approved charity -- an IRS-recognized 501(c)(3). Consult IRS Publication 4303, "A Donor's Guide to Vehicle Donations," as well as its charitable organizations page, which offers a way to search for tax-exempt organizations.

 Double-check your choice at the Better Business Bureau's National Charity Report Index, which tracks 20 different accountability standards, or, which rates 10,000 charities according to their financial health and transparency.

Contact the charity. Ask if the charity will resell the car for cash, offer it to a needy family or keep the vehicle for the organization's daily use.

A vehicle that is resold for cash (that is, most of them) is deductible only on the sale price of the car, rather than its fair market value. If the charity gets only $800 for your $2,500 Ford, you can deduct only the $800. But if the charity uses your car in its daily operations, for things such as deliveries, you can deduct the full fair market value.  Some charities offer vehicles at a discount to families who are rebuilding their finances; in those cases, the deduction can be taken at the higher amount.

 Get a receipt from the charity. The charity is required to send a notice of sale within 30 days advising you of the car's sales price.

Terminate your registration and insurance coverage. Don't just sign the title over and let your insurance and registration lapse, says consumer analyst Penny Gusner.

“The state may see in its records that you have a car still registered that is without insurance and penalize you for that,” she says. “And if the vehicle is in a crash or impounded, as legal owner you are going to be looked at.” 

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