Investigate the charity or car donation center you are thinking about donating your car to. All charities and all car donation centers are not alike. As with everything is life, there are some good ones and there are some unscrupulous ones. You will not know if you do not investigate them. There are some relatively easy ways you can investigate them.
If you are thinking of donating your car to a charity or a non-profit car donation center, you can check out their tax filings by simply logging onto irs.gov. Once you do, click on the charities and Non-Profits tab and then the Search for Charities button on the left. You can also check them out through sites like Charity Navigators, GuideStar, etc. You should also check with the Attorney General’s office for your state to see if any complaints have been filed against the charity. In 2010, the New York State Attorney General launched an investigation into several alleged “scam” car donation charities in the New York City area. One of them was actually shut down because it used less than two percent of the money from car donations for charitable purposes.
The other thing you should investigate is the tax deduction you will receive from your car donation. Most charities sell car donations because there is too much liability involved in giving a car to a needy person or selling it to them at a really low price. In addition, those charities rely on the proceeds from the sale of car donations to help them fund their mission.
If the charity sells you donated car, you can claim the greater of $500 or the amount the charity actually sells your car for. To maximize your tax deduction, you will need to investigate how the charity or car donation center will sell your car. Some charities sell all car donations to the same vendor. This is never a good idea as the more competition there is the higher the sale price is likely to be.
Other charities auction all cars. This is a good thing if the donated car is in decent shape. However, if the car donation needs repair or is in poor condition, it may not bring the best sale price. The reason for that is because the buyer has to pay a fee to enter the auction and another fee to purchase a car at the auction. Buyers often take these fees into consideration when bidding on vehicles.
Often, the best sale price comes from using multiple vendors for selling donated cars. Here’s why. If the donated car is in good condition, it makes sense to sell it at auction so that more buyers are allowed to bid on it. If the car is in fair condition, selling it directly to a used car dealer may bring the highest price since they may be willing to pay more money for the car to avoid the fees charged by the auction facility. If the car is really in poor condition, a parts yard may be willing to pay top dollar for it so that they can re-sell the useable parts and the scrap metal from the car.
Investigating the method the charity or car donation center will sell your car for will help you determine whether they will get you the best tax deduction for your donation.