Car Donation Charities FAQs and The IRS

4 FAQs Regarding Car Donation Charities and Tax Deductions

As a taxpayer, there are some car donation charities FAQ that you probably should or want to know. To that end, the IRS has gone to great length to make their policies easily available in many different ways, some of which are generally more effective than others.

Car Donation – Charities FAQ’s

Car donation, charities FAQs have been a matter of public discussion ever since the somewhat shady nature of vehicle donation was made apparent in the early ‘aughts. When the General Accounting Office (GAO) issued their groundbreaking report to the US Senate in late 2003 (as a result of public outcry and pressure from states), not even the IRS or Congressional Finance Committees seemed to know the rules and regulations regarding car donation charities.

FAQs have since been adjusted according to the new rules that made it far harder when for-profit companies tried to use legitimate charitable operations to line their own pockets. Now that many of these loopholes have been addressed, your odds of making a charitable automobile donation that you can feel good about are better than ever.

1. How Do You Select A Good Charity?

Among the most often asked car donation charities FAQs is how one goes about selecting a good, worthwhile charity.

They may contact such a charity immediately, or look up an auto donation service that serves charities they support. The IRS would generally prefer you donate directly to keep potentially obfuscating the amounts actually going to the charities in question.

2. What About Legal Paperwork?

Of course, the IRS would also like to file the correct paperwork, since even a friendlier IRS still has a slavish devotion to filling out standardized forms. In the case of auto donations greater than $500, a donor is required to file a Form 8283, section A. This can be downloaded from the IRS website and should be signed by both the donor and the charity in question. Many charities will happily supply you with such a form – it is in your best interest to find out if this will be taken care of for you before you sit down to do your taxes at the end of the year.

3. If The Car Donation Is Greater Than $5,000, Do You Need To Supply An Appraisal?

Another important car donation charities FAQ is what is the value of your car donation? If the donation is worth more than $5,000 (whether the vehicle is to used by the charity or sold), section B of Form 8283 must be filled out and attached to your deductions form. Additionally, you will also need to supply an independent appraisal with your return for such high-end donations. This can be arranged by the charity or yourself. The cost of such an appraisal may or may not be considered part of the donation – check with your CPA to make sure what the current regulations are given your exact circumstances.

When dealing with car donation and charities, FAQs pertaining to how you will go about itemizing your deductions govern how such a donation will actually benefit you and the charity in question. For instance, it is wise to consider the extra effort (or money in the case of paying a professional tax preparer) is involved in switching to itemized deductions.

4. Is The Car Donation A Tax Deduction from Your Net Income or Tax Owed?

Some people are actually better served by taking the standardized deduction. You should balance these potential expenses against the actual amount your tax burden will actually be decreased. In most tax brackets, this represents about a third of the value of your car donation. Charities and FAQs pertaining to car donation should clearly point out that deductions are from one’s net income rather than the amount of tax owed.

When considering the actual tax benefit of your car donation, charities FAQ usually do a good job of pointing out the limitations of the value you can claim as a deduction, as well as their own status as an IRS sanctioned non-profit organization. In the case of charities that have a limited or dubious mission, you could find your deduction challenged as going to a less-than-charitable organization. Do your own homework and verify the validity of any charity you choose to donate to.

A note to remember, all the car donation charities FAQs in the world won’t protect you if you take an active role in defrauding the federal government. Honesty is the best policy in all dealings with the IRS.

Is The Kelley Blue Book Used For Charitable Auto Donations?

The Kelley Blue Book – Deductions and Appraisals When Donating A Car To Charity

There was once a time when the Kelley Blue Book was used by most people when they were looking to find out the value of their car and at when taking deductions at the end of the year for their auto donations. However, since 2005, IRS regulations have much more clearly stated how one can value a vehicle that is donated to charity.

Was The Donated Vehicle Drivable?

This has had a very large impact on vehicles that don’t run or are otherwise unsuitable to be given to anyone to drive. Such vehicles were, for many years, assigned a value out of the Kelley Blue Book, as if they ran.

What most people failed to realize is that even the “poor” rating in the Kelley Blue Book referred to cars that were legal and safe to drive as well as actually moving under their own power. However, most cars that were donated to charity in the early ‘aughts were not even running – often rusted hulks there were good for little else than parting out after a wholesale auction. This is, of course, where most of them ended up.

Reading The Kelley Blue Book

Despite this discrepancy, it is very common for people to take deductions that are listed under the “fair” column of the Kelley Blue Book rather than what the car was actually worth. When you read it carefully, the “fair” description of a vehicle actually describes one that is in rather good shape.

That’s where the IRS stepped in. After a report to the Senate Finance Committee from the US General Accounting Office in late 2003, it became apparent that more than half a billion dollars had been deducted that were not actually given to the charities in question. This was partly due to people taking the wrong values for their deductions from the Kelley Blue Book.

However, the biggest culprit that made this formerly small loophole a large-scale tax dodge were for-profit companies that handled the donation and sales for non-profit organizations. Many were quite small NPOs that didn’t have facilities for taking care of non-running donations. These companies furthermore were encouraging people to take the maximum benefit from the Kelley Blue Book that they could find.

Car Donation Tax Deduction – What Does The IRS Expect?

Of course, this is not what the IRS ever meant. However, the regulation has since been clarified to more accurately reflect what was meant by fair market value. It means that rather than taking the highest available Kelley Blue Book value, you should choose a value that someone would actually be willing to pay if you were selling the car yourself.

To further clarify this, they have also ruled that if the car is worth less than $5,000, the value claimed for any car that is directly sold is the sale value of that vehicle. So, if sold on the wholesale market by a third-party agent, you could only claim that amount, even though it may be a fraction of what your car is actually worth, regardless of the Kelley Blue Book price.

Vehicles that are thought to be worth more than $5,000 should be verified by an independent auditor and photographed for documentation purposes. One doesn’t have to actually attach either of these (or a photocopied page of the Kelley Blue Book) to their tax return, but a Form 8283 must be attached, even for donations of more than $500.

So, though you can’t simply take the highest value available for your make and model from the Kelley Blue Book, you can still use it to help you determine what someone might pay for a car with the same coughs and dings as yours, just as anyone deciding what the market will allow. You should also consider what cars are selling for in the newspaper.

Even if you can’t get much out of the corrected Kelley Blue Book value of your car, donating to charity is a good way to make an impact in your community. Moreover, you can usually claim up to $500 without too much bother, and most people can use even that small of a tax deductible if they’re self-employed.

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