DONATE CAR FOR TAX CREDIT: Car Donations Charities Los Angeles Tax Deduction California Charities NJ Massachusetts of Your Choice Seattle

Car Donations Charities Definition

Source:- Google.com.pk

You already know that you can make charitable contribution tax deductions. Yes you can! Here's the thing...

This might sound crazy. Are you ready? In most cases, it does not make economic sense to donate your clunker to charity.

What? All the other 240,000 places on the internet that talk about car donations to charity are all gung-ho about donating my car to charity. Tax-deduction-tips.com says something different. Why?

How dare anyone question the goodness of donating a vehicle to charity. We are not questioning the goodness. We are questioning the economics. For many vehicles not only will the donator end up better off, but so can the charity by not donating the car. It's going to take a minute here to walk through the math and get to the conclusion. The vast majority of the time here's what happens when you donate your car: The charity gets a few cars in and gets into liquidation mode. Most charities are just going to sell off these donated cars as quickly as possible to raise urgently needed cash. Typical amounts raised are $250 to $300 per car.

Let's look at a few other numbers about a car and what each number means. You've got a 10 year old sedan. Fair market value = $2,300. Retail price at a used car lot = $5,100. These numbers can be obtained for any vehicle, just go on kbb.com and fill in the required details about the car. Or you can also go to Edmunds.com they have a calculater called TMV that does the same thing.

But what happens when you donate this car to charity? The charity doesn't have the infrastructure or expertise to put the car through the necessary steps to sell it to a retail customer for $5,100. They don't have a used car lot out front with a little car salesman sitting inside a box waiting for somebody to come along and buy a car. The charity needs cash now.

They are willing to accept $250 from an auction middleman. Keep in mind the charity will incur other expenses associated with these transactions. After all other friction expenses, the charity maybe has $100 left to put towards the actual charitable cause.

This is the mathematical crux of the issue. The IRS changed the rules a few years ago to no longer allow a taxpayer to deduct the fair market value of the vehicle. The taxpayer only gets to deduct the amount the charity gets when it sells the car . In this case, and in most cases, $250 or so instead of the $2,300. That $250 is not the fair market value. It is a market value. Somebody bought it for $250, somebody sold it for $250. By definition it is a market value. It is not a fair market value. Fair market value is determined in a liquid market with multiple buyers and sellers pressuring supply and demand to an equilibrium. In our example a fair market value would be $2,300.

Why did the IRS change the rule back in 2005? Because taxpayers were cheating and taking the $5,100 number. So instead of fixing the problem rationally they went to the other extreme and now only allow what the charity gets when it offloads the car at a firesale price. Two more concepts get us from this point to why it is now often inadvisable to donate your car to charity.

If you slap a for sale sign on the car for $2,300 you are going to incur some other expenses. Let's call them 'externalities' even though that may not be the economically correct term. You are going to be spending time and worry setting up appointments for people to come along and hopefully end up making a transaction. No doubt this is a hassle. It is a negative utility you will experience. Put a value on it if you want to. Is that expense enough to make it better to just donate your car. Maybe in some cases. To keep our example clean we will disregard these externalities. Sell your vehicle on the private peer to peer market for the $2,300 or so that it's worth. Now instead of getting a tax deduction on your 1040 of $250 you have $2,300 cash. You can easily hand over a nice little donation to the charity. Anything more than $100 and the charity is ending up better off than if you had donated your car. What is a $250 deduction worth? Depends on your marginal tax bracket but not much. If you were in a 30% tax bracket you would end up with $75 after donating your car and taking the deduction. Doing it our way you end up with $2,300 minus however much of that you decide to just give to your favorite charity in cash.

This is why, regardless of what you see on the other 240,000 places on the internet talking about car donations, often you should not donate your car to charity. There are a couple of important exceptions when the taxpayer does get to deduct fair market value for the vehicle. We would be remiss if we did not show these two exceptions. But first. Why would the other 240,000 websites be in favor of you donating your car? Well, people might like to think it is out of an unselfish desire to help charities to help people in need. There is another reason. There is usually a profit motive. Many people would not want to believe a charity or even a website stating that car donations would be driven by a profit motive. Just be aware that all of the people involved in the chain of converting car donations are being paid well. The profit motive is usually there every step of the way. Now that we've shined that spot light where nobody else has, lets look at the exceptions. When is it a good and economically sound idea to donate your car to charity?

The first exception is to donate it to a charity that is going to put the vehicle to good use carrying out it's mission as a charity. You can think of many situations. What about those charities that drive around and deliver meals on wheels? What about your local church or mosque or synagogue? Don't they need to go out and tend to the elderly shut-ins every day? They need a dependable vehicle. What about a charity that needs to drive around to collect other donations from people? They only need a dependable vehicle. They don't need a new Cadillac Escapade. If you give your car to a charity that is going to use the car, then you will get to deduct the full fair market value.

The second exception: more charities would be wise to copy the 1-800-Charity-Cars people who make donated cars drivable and give them to needy families. As a charity, you don't need to be scoring a $5,000 or $8,000 used car to give to a needy family. Many families will be very grateful for any car that runs and passes the state safety inspection. For you charity workers reading this: come on. Wise up. There are thousands of battered women in shelters that do not have a car. You do not need to find them a $7,000 car. Get them into a $1,500 car so they can transport themselves to a job or where they need to go. In this scenario the donator also deducts fair market value for the car.

Charity donators: To get your full tax deduction, make sure you get a statement from whatever organization you are giving the car. The statement must say that the charity will be using the vehicle. "Intervening Use" is the required words. There are specific requirements to be included on the statement that prove to the IRS the vehicle is being used by the charity; not being sold for scrap. The details of the necessary statement can be found in the downloadable PDF here Car Donation Details PDF.

Sometimes you can get yourself a nice charitable contributions tax deduction. But you need to put in the 15 minutes to read the PDF. You then need to put in the time to talk to a few people at the local charities or religious centers until you find one that needs your vehicle and will put it to use conducting the charitable operations. Then you and they will need to do the paperwork. Then you should notify your local DMV that the vehicle is no longer yours and then call your insurance company to cancel your car insurance. Viola.