Consider all of the aspects of car donation, both the positive and the negative. There are many practical reasons to donate your car to charity. It is much easier than trading in your car at a dealership and arguing over the trade in amount. It is also easier than trying to sell your car privately. You don’t have to wait for the phone to ring or for people to come to look at your car. And if your car does not run, is rusted or needs a lot of repairs selling it might be very difficult. When you donate car, you are eligible for a tax deduction of $500 or more. And, of course, you help a charity when you donate car.

There can be a negative side to car donation which you should consider.  One thing to consider is the tax deduction. You can only claim the deduction if you itemize on your federal tax return. If you don’t have enough deductions to itemize, you won’t get a tax benefit from your car donation. If you are not sure if you can itemize on your taxes, check with the IRS or a tax advisor. Also consider the reputation of the charity or car donation center you are going to donate your car to. It is very easy to check out a charity online or through various agencies like the IRS, Attorney General, etc. There are plenty of reputable charities you can donate car to; there is no reason to use an unscrupulous one. The “fly by night” ones may be out of business tomorrow and any record of your car donation will be gone.

You may also wish to consider the amount of money the charity you donate your car to will get from the sale of your car donation. Some for-profit car donation centers only send a small percentage of the proceeds from the sale of car donations to charity. Also, if you donate car to a car donation center that advertises a lot, a portion of the proceeds from the sale of your car donation will go to pay for those ads. If this concerns you, look for another charity to donate your car to.

The benefits of car donation greatly outweigh the disadvantages. You’ll reap only the benefits when you consider all the possibilities and act accordingly.

Beware of false claims.  Beware of any charity or car donation center that uses any of theses phrases; “full fair market value”, “maximum value”, “maximum deduction” “huge tax deduction”, “fully tax deductible” or “tax credit”.   First, there is no tax credit allowed for a car donation. The IRS allows a tax deduction.  A tax credit and a tax deduction are 2 completely different things. In order to claim a tax deduction, you have to itemize on your federal income tax return. This is generally known as “filling out the long form”.

The tax rules regarding the amount a donor can claim for a car donation changed effective January 1, 2005. If you donate your car to charity, the amount you can claim for your tax deduction depends on what the charity does with your car and the fair market value of your car on the day you donate car.

The fair market value is the amount you can reasonably expect to sell your car for in the open market in its current condition. Besides looking at local car ads, you can use several pricing guides to help you determine the fair market value of your car. Some of the more popular guides are the Kelly Blue Book, the National Automobile Dealers Association guide and the Edmunds guide. They all will help you determine how to value your car based on its condition, mileage and accessories. Use the figures for private party sales not the retail sales. Beware of over estimating the fair market value of your car. If you do and the IRS chooses to audit your tax return, you’ll not only lose part of your tax deduction, you may have to pay a penalty as well.

The other factor that determines the amount you can claim for your tax deduction when you donate car is what the charity does with your car. If the charity uses your car for their purposes, gives it or sells it a greatly reduced price to a needy person or makes substantial improvements to your car before selling it, you can claim the fair market value. These practices, however, are not the norm. Most charities sell car donations as-is. If the charity sells your car, you can claim the fair market value up to $500 or the amount the charity sells your car donation for if it is more than $500. IRS publications 526 and 561 will give you complete details on how to determine your tax deduction.

Beware of slick advertisements especially if you are concerned about how much of the proceeds the charity will get from the sale of your car donation. Radio and newspaper ads and billboards are very expensive. The donation centers that run these ads use a portion of the proceeds from car donations to pay for them.

Donating a car to charity can be a beautiful thing if you know how to avoid the pitfalls.

Ask questions. The more you know the more information decision you will make regarding whether to donate your car and what charity to donate car to.  Here are some questions, you should ask:

1. What kind of vehicles does the charity accept for donation? Some charities only accept cars that run and are less than 10 years old. If your car doesn’t qualify, the sooner you know it, the less time you’ll waste and the sooner you can look for another charity that will accept your car.

2. What will the charity do with my car? The answer to this question is very important as it affects the amount you can claim for your tax deduction. If the charity uses your car for its purposes, makes major repairs to it or gives it to a needy person, you can claim the fair market value of the car. If the charity sells your car, which is what most charities do, you can claim the amount they sell it for or $500, whichever is more.

3. Do I have to pay to have my vehicle picked up? If the answer is yes, call another charity. You should never have to pay to have your vehicle picked up.

4. What kind of receipt for tax purposes will I receive? The answer depends on what the charity does with your car donation. If it the charity plans on using the car, repairing it or giving it away, you should receive at letter indicating those intentions. If the charity sells your car donation for more than $500, they are required to provide you with IRS Form 1098-c. If your car donation is sold for less than $500, the charity is simply required to provide you with a written acknowledgement of your donation. For complete details, see IRS Publication 4303.

5. What do I do with the title to my car?  Some charities will ask you to give the title to the tow truck driver, while others will ask you to mail the title to them via certified mail. The reason some charities will ask you to mail the title is because it is safer for you to have the title in the hands of the charity rather than those of the tow truck driver. The receipt from the certified mail will be your first proof that you donated your car. Also, if you mail the title, you may not have to be present when your car is picked up. Never, leave your title in the car. If you do, you could end up with no car and no proof of your car donation.

6. What do I do with my license plates? If your car has license plates from any Sate except Alaska, California, Delaware, Hawaii, Kentucky, Minnesota, Oklahoma, Oregon, South Dakota, Texas or Washington State on it, you are required remove them and either return them to the Department of Motor Vehicles or transferred them to another car. Many of those States will not allow you to cancel your car insurance until you have done so. Do not leave your car parked on the street without license plates on it. If you do, you may get a ticket or your car may be impounded before the charity’s towing service arrives to pick it up. In this case, you will be liable for all fees.

7. Will the charity process your car donation themselves or use a company to do it? If the charity uses a company, you may want to know how much of the proceeds the charity will receive.

The more informative you have, the more you will be able to determine if you want to donate car and if so, what charity you want to donate car to.