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Should You Donate Your Car To Charity?

It's trade in time. The dealer doesn't want to give you anything near what you think you car is worth and you don't want the hassle of selling it yourself. You seen those ads in the paper and heard the radio spots about donating you car to a charity. While this seems like an altruistic way to get rid of an unwanted vehicle, it requires some homework to ensure that it is financially beneficial, will not trigger an Internal Revenue Service audit, and the charity is legitimate.

Determining if it is financially attractive to donate a vehicle depends largely on your tax bracket. If you are up in the 28-percent or above bracket and are donating a relatively valuable vehicle you could result in a substantial deduction. However, if you are a lower bracket, you are probably better off selling it. even to the dealer. This is especially true if you use the standard deduction rather than itemizing Complete a sample tax return with and without the estimated donation value, or better yet consult a certified tax advisor.

Because of the popularity of auto donation programs, the IRS is paying close attention to the fair market value placed on donated vehicles. According to IRS Publication 561, Determining the Value of Donated Property, 'Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.'

Overstating the price of your car is the primary reason the IRS may not allow your deduction. If you overstate the value you could be held liable for not only the income tax, but also interest and penalties. Avoid an red flag from the IRS by researching the current fair market value of your vehicle. Consider the overall condition of the car and its mileage. Document the condition by taking a few picture and account for any repairs you might have done to the vehicle prior to donating it. The IRS may require the documentation if it questions the valuation.

Filing the proper paperwork according IRS guidelines is also essential when donating. If the vehicle is worth more than $500, attach a completed IRS Form 8283 to your tax return. If your vehicle is worth $5,000 or more, you will have to attach a qualified appraisal to your tax return. The appraiser and the charity must also sign the second page of your Form 8283. You, not the charity, is responsible for determining the true value.

You can easily establish a vehicle true value via the Kelly Blue Book website at www.kbb.com or by using Edmunds' True Market Value® used vehicle appraiser at www.edmunds.com. Both of these account for model, accessories, mileage, condition, and location in determining the true value, as directed by the IRS. Make sure to keep a copy of how you determined the value in the event of an audit.

Next verify is that the particular charity is eligible to receive deductible car donations. The organization should be able to provide an IRS Determination Letter stating qualification as a tax- exempt charity. This does not apply for religious charities that need not apply for exempt status. If the IRS determines the charity is not legitimate, the deduction will not allowed and could even bring penalties. The IRS is closely scrutinizing donation programs because some encourage tax fraud by claiming that you can receive large deductions for almost worthless vehicles.

Some organizations use the cars themselves, while others sell them directly to raise money or use an outside seller, receiving either a flat rate or a percentage of the profit. Some programs are not run by charitable organizations, but for-profit salvage companies which uses of the charity's name in return paying the charity a set dollar amount for each vehicle donated. Here you are not donating to a charity, but giving the vehicle to a for-profit company and cannot take a deduction. To ensure you are dealing with a reputable charity, ask what the charity plan to do with your vehicle. If the charity plans to sell your car, will it use a broker? Does the charity receive a large amount of the sales price or simply a flat per-car fee unrelated to the sales price? The more desirable charity is one that receives a percentage rather than a flat per-car fee. For instance, if the charity receives only 10% of the sales price, you could offer more by selling your car and donating 100% of the proceeds. You would still receive the same tax deduction and the charity would benefit more.