Donating a car to charity seems like a win-win proposition. Ideally, the charity will use your car to raise money for a good cause and you’ll pocket quite a bit of money thanks to a federal tax deduction.
You do need to be careful when donating your car to charity. If you donate to an unqualified organization or take the wrong steps when filing paperwork for your deduction, you might not receive a tax refund. In that case, you’d be out of a car with nothing to show for it.
Here are a few tips to follow to avoid falling victim to a car donation scam:
Check the Charity’s Credentials
For your donation to be eligible for a tax refund, the organization you donate to must be eligible. The Internal Revenue Service makes this information easy to access: Publication 78 is a cumulative, annually updated, searchable list of eligible charity organizations. If the charity is a church, synagogue, mosque or temple, donations will remain deductible but the organization may not be listed in the IRS system.
Another way to check up on an organization’s background is to go through its state registration information. State charity regulators often have records on file showing when the charity was founded and how much of its money goes to charity and how much goes to administrative costs.
Follow Tax Laws to the ‘T’
One of the most important steps of earning your tax deduction is making sure your tax filing is put together appropriately.
First, itemize your deductions on your personal tax return. You don’t normally need to itemize your deductions — unless they exceed the standard limit — but if you decide to write off a car donation, you definitely need to itemize your return.
Second, make sure you deduct only the car’s market value. You are not allowed to just list the Blue Book price of your car as a deduction. The car’s official value and the value of your deduction will come from the fair market value of your car, which depends on wear and tear and general condition.
Find Out Where the Car is Going
This could be an important factor in your decision to donate the vehicle to a particular charity. If the organization is a private charity, ask questions to find out what it intends on doing with your old car. If it will be resold, who will buy the car and who will receive the money from the resale?
Simon Zhen is a research analyst for MyBankTracker. He is an expert on consumer banking products, bank innovations, and financial technology.
Simon has contributed and/or been quoted in major publications and outlets including Consumer Reports, American Banker, Yahoo Finance, U.S. News – World Report, The Huffington Post, Business Insider, Lifehacker, and AOL.com.