Vehicle donation has become an increasingly common practice, especially among taxpayers. Perceived as a positive charitable endeavor, it can be a mutually beneficial transaction for both donors and beneficiaries if done through the right channels, as the charity can gain an asset and the donor can offload their old vehicle without the hassle of selling it themselves and with the opportunity to accumulate tax write-offs. However, the process can also get messy if not done properly. Here are six key considerations you should think about before donating any vehicle for tax purposes:
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1. How is vehicle donation conducted?
The procedure to donate a vehicle can be quite simple. There is a “mediator” front that brokers the towing, sale, and transfer of the vehicle title. The broker receives a portion of the proceeds as payment, and the remaining funds are then sent to the charity organization.
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2. How can charity funding be maximized?
Opt for a mediator who is very clear about how the charity organization will benefit from the contribution. If the mediator seems suspicious, opt for a different one. Do research on the charity organization as well to ensure that they are using donations effectively.
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. Look for non-profit donations
It is essential to contribute to a non-profit association that has a 501(c)(3) registration, since these donations are considered tax deductible. In comparison, those registered as 501(c)(4) are not classified as non-profit organizations, meaning that donors will not receive tax deductions for donating there.
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5. Fair market value tax donations
One should always stick to fair market value for the vehicle and not try to donate it under the pretense that it is worth more, since the actual tax deduction is evaluated based on the market value. Donors may be required to complete careful documentation, since charities are under high tax scrutiny and need to be transparent about the donations they receive. The value of the vehicle may also determine the tax deduction category under which it falls. For instance, a vehicle valued at $250 requires a written invoice from the non-profit trust; a vehicle priced at $500 or more has to be submitted in section A of the IRS form 8283 and vehicle donations over $5000 have to be categorized in section B of the same form.
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6. Check the authenticity of a fundraiser
When it comes to charities, the number of scammers out there is surprisingly high. There may be entities who will try to exploit your donations for their personal benefits. An investigation of the company mediating the contribution and/or the association receiving it is very important. Donors need to understand the true intentions of the trust receiving the fund. Most importantly, whether the organization has a non-profit status must be ascertained before donating a vehicle.
