- There shouldn’t be any fees involved in a charitable donation.
- Vet the charity you want to donate your vehicle to closely and request the nonprofit’s 501(c)(3) letter granted by the IRS.
- Scammers sometimes act as intermediaries who only pass on a tiny percentage of the vehicle’s value to legitimate charities.
- Sometimes, scammers pose as a fake charity and keep the proceeds.
How to donate your car and get a tax deduction
You may not be surprised that some scammers are prepared to siphon off money from charitable car donations. But you might be shocked that there seems to be a small industry dedicated to doing just that.
These unscrupulous operators leave the charity – and, more importantly, its beneficiaries – worse off. But they can also act against your interests by reducing or eliminating the tax deduction you’re due.
This article arms you with the information you need to avoid these scams.
Why donate your old vehicle?
According to the Consumer Law Group, an estimated 700,000 cars and trucks are donated to charities across the U.S. every year.
You might want to give your old car or truck away for several reasons – from the satisfaction of helping those in need to avoid the hassle of selling it, seeking a tax break to getting rid of a clunker.
How do you spot a car donation scam?
Often, the first sign someone’s trying to scam you is that the person approaches you. This isn’t a surefire indicator because some legitimate charities might scan local papers and websites for small ads for low-value car sales and then contact the seller. But it should raise a red flag.
Charities are easily vetted by consulting charity watchdog organization CharityWatch, which tells donors how efficiently a charity uses donations to fund programs and exposes nonprofit abuses and advocates.
Alex Brodrick
President and CEO of Volunteers of America MichiganHere are a few tips:
- If someone asks you to donate your vehicle, ask that person if he or she works directly for the charity being represented. Suspicious vehicle donation programs often accept donations on behalf of other groups and pass along only a tiny fraction of the proceeds.
- Beware if a vehicle donation program is vague about the programs it supports or where the programs are offered.
- Before you donate, ask what percentage of your donation goes to helping people. At Volunteers of America, for instance, 88% of donations go directly to locally run programs.
How do scammers operate?
Here’s how scammers can benefit from car donations. They can:
- Act as intermediaries who deduct outrageously high expenses and pass on only a tiny percentage of the vehicle’s value to legitimate charities.
- Pose as a fake charity and keep the proceeds.
- Act as fronts for car auction houses to increase their fees, commissions, turnovers and profits.
Remember that people bidding at a car auction typically understand that they will have to pay a commission in addition to the bid price. So, they tend to bid lower, considering the total they will have to pay.
In practice, an auction house reports the winning bid without reflecting the commission it receives. The seller pays a commission, too.
How to avoid being scammed when donating your car
A recommended strategy for avoiding scams is to go local when sourcing a nonprofit to whom your car can be donated.
“We recommend that donors look for human service charities where they live and contact them directly to see if they can take their car donation,” says Sandra Miniutti, former vice president at Charity Navigator. This nonprofit organization helps people vet donation seekers.
Kerry Sherin, a consumer advocate at BeenVerified, echoes this advice and says consumers should vet the charities appropriately.
“It makes sense because you can visit the charity, meet its people, and discover more about its work and operations,” Sherin says.
Kerry Sherin
Consumer Advocate at BeenVerifiedKerry Sherin recommends the following advice for consumers:
- Check with the Better Business Bureau or a group like Charity Navigator or CharityWatch to ensure your chosen charity is reputable.
- Request the nonprofit’s 501(c)(3) letter granted by the IRS, the incorporation document from the Secretary of State’s office in the state where the nonprofit is operating, and the corporation bylaws for accepting vehicles as donations ahead of time.
- Look for pre-printed forms, uniforms and a branded tow company vehicle before signing the title.
As you are going to discover below, the charity’s 501(c)(3) status with the IRS is essential for two reasons:
- Without it, you can’t claim your tax deduction.
- A charity without that status may not legally be a charity at all. It might still be a good cause, but your suspicions should be aroused.
If you’re in doubt, double-check that the organization is qualified with 501(c)(3) status by calling the IRS toll-free at 877-829-5500 or by looking it up with the IRS 501(c)(3) look-up tool.
What to do when you hand over your vehicle
One way to save your chosen organization some cash is to drive your vehicle to the charity’s premises, eliminating the collection cost. If you opt for collection, you have a final chance to weigh the legitimacy of the organization you’re donating to. Don’t hesitate to call the whole thing off if you become suspicious during that process.
However, don’t expect the driver or tow truck to carry the charity’s branding. Most contract out the work of picking up vehicles to third-party specialists, who may also be responsible for disposing of it. It is a good sign if the specialist towing company appears reputable, with branding on the tow truck, a driver in uniform and proper paperwork.
Finally, there shouldn’t be any fees involved in a charitable donation.
“Legitimate vehicle donations should be straightforward and simple, with absolutely no charges – no towing fees or paperwork fees, for example,” Brodrick says.
Prepare and complete paperwork beforehand
Before parting with the vehicle, remove the license plate(s) from your car and any garage door opener and satellite navigation device that wasn’t factory-fitted. You should also cancel any extended warranty insurance that’s still operative.
Most importantly, always sign the title before handing it and the car over, and then make copies of both sides of the document. You must sign and print your name on the title.
An open title means the donor is responsible for registration and licensing fees until the title has been properly closed, with the charity being the recipient, Sherin says.
Fraudsters will try and convince the donor to leave the title unsigned. With an open car title, the individual can sell the car to another person or to a used-car dealer for cash.
If the person collecting the car pressures you to leave the title blank, you should regard that as a major warning sign that you’re likely dealing with a scammer. Ask the driver for a temporary receipt for the vehicle, and ensure the charity mails you an official receipt within a reasonable period.
What are the tax advantages of car donations?
If you usually take a standard deduction
For some people, there are no tax breaks for donating a vehicle. You must itemize deductions in Schedule A of your IRS form 1040 to qualify. If you take the standard deduction, you can’t claim your donation.
Few taxpayers will benefit if they claim only for a car donation. If you decide to itemize just for the year you make such a donation, you should claim for everything else you can deduct.
That’s because you’ll lose your standard deduction of $12,900 for single filers, $19,400 for heads of household, and $25,900 for married couples filing jointly.
And that itemizing means keeping receipts and more form filling. Whether you think that’s worthwhile depends on the vehicle value you donate and the total you can claim for other deductions.
If you already itemize
Of course, if you already itemize your deductions, that question doesn’t arise.
However, you still have to observe specific IRS rules, which are numerous and include:
- The eligibility of the charity to which you are donating, which would usually be a “qualified organization” with 501(c)(3) registration.
- If the charity sells the vehicle, you can usually only deduct the gross proceeds — not the vehicle’s fair market value.
- If the charity significantly improves the car or keeps and uses it for a period for its charitable purposes, you may be able to claim the car’s fair market value on donation.
You must obtain and retain specific paperwork.
Brodrick of Volunteers of America says that generally, if your vehicle is 14 years old or newer and is sold by the charity, your deduction will be limited to the gross proceeds the charity receives from its sale.
Otherwise, if the value of your vehicle is up to $500, the IRS states that it is up to the donor to determine the value. In rare cases, when a car is worth more than $5,000, the donor may opt for a certified appraisal to determine fair market value.
If you want more information – especially on the circumstance in which you can deduct the fair market value rather than the gross proceeds of the sale – download “A Donor’s Guide to Vehicle Donation” (publication 4302) from the IRS.
What paperwork do you need to support your deduction?
The IRS says you must have a written acknowledgment from the charity if you deduct more than $500, including:
- Your name and taxpayer identification number
- The vehicle identification number (VIN)
- The date of the contribution
Also, according to the IRS, that acknowledgment must additionally include one of the following, but there can be other requirements that are described in “A Donor’s Guide to Vehicle Donation”:
- A statement from the charity that it didn’t provide you with any goods or services in return for the donation.
- If the charity did provide you with such goods and services, it must describe them and provide a good faith estimate of their value.
- A statement that those goods or services comprise “intangible religious benefits if that was the case.”
“The receipt needs a date, the amount, the address of the place you’re donating the car and the phone number of the contact person,” Sherin says. “If the IRS audits you, you’ll be asked for this information.”
And according to the IRS, if the acknowledgment does not contain all the required information, the deduction may not exceed $500.
None of this should be a problem for a legitimate charity, likely to have boilerplate receipts/acknowledgments. It can simply pick the appropriate one, fill out the relevant fields and send the document to you.
What to do if you’re the victim of a car donation scam?
If you realize you’re being scammed before you sign over the title and part with the car, you can tell the scammers to get lost. But, mainly if you haven’t done your homework, you may not recognize you’ve been a victim until the IRS rejects your deduction or your receipt/acknowledgment from the charity shows it’s received only a tiny fraction of your vehicle’s value.
Most scams skate around the extreme edges of the law but don’t cross into illegality. And you’re likely to get the satisfaction of seeing your scammers in a criminal court only if you’ve been a victim of outright fraud.
Still, whether or not you completed the donation, if you’ve had a bad experience that falls short of criminal fraud, you can report the intermediary to the office of your state’s attorney general.
If your beef is with the charity itself, your state should have a charity regulator to whom you can tell your story. Those regulators are usually part of your state’s attorney general’s or secretary of state’s departments.
Don’t be put off by scammers
It’s bad enough that unscrupulous people are siphoning off money from good causes to line their pockets. But it would be even worse if their activities precluded others from donating their cars to charities. So, don’t let scammers deter you. Be prudent, make a difference – and get your tax deduction.
– Peter Andrew contributed to this story.
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“There are outright bogus charities. But more often, it is simply a matter of a legitimate operation with little money getting to an actual charitable cause,” Miniutti says. “That’s why it is better to go directly to a local charity.”