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How to donate your car and get a tax deduction

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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 needy beneficiaries — worse off. But they can also act against your interests by reducing or eliminating the tax deduction to which you’re due.

This article arms you with the information you need to avoid these scams. To protect yourself and those who need your generosity, read on.

Why donate your old vehicle?

In addition to the satisfaction you get from making a charitable donation and helping those in need, there are usually two reasons why you might want to give your old car or truck away:

  • It isn’t (or is hardly) running, and you just want to get rid of it. A charity might come and tow it away for you.
  • You want to avoid the hassle of selling it, and your resulting tax deduction takes some of the sting out of not getting its full market value.

Why do scammers scam?

Obviously, scammers are in it for the money. But how do they benefit?

Well, there are a number of ways. They can, for instance:

  • Be intermediaries (middlemen or middlewomen) who deduct outrageously high expenses and pass on only a tiny percentage of the vehicle’s value to legitimate charities
  • More rarely, be a fake charity, and keep all the proceeds for themselves
  • Be fronts for car auction houses, whose primary goal is to increase their fees, commissions, turnovers and profits

It’s worth remembering that people bidding at a car auction know they are going to have to normally pay commission on top of the bid price. So they bid lower, with the total they are going to have to pay in mind.

That means an auction house may truthfully report the winning bid without that reflecting the money it’s taken out of the deal, because the buyer would have paid more if commission wasn’t going to be levied. In addition, the seller pays commission, too.

How do you spot a car donation scam?

Often, the first sign someone’s trying to scam you is that the person approaches you — rather than the other way around. 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.

Alex Brodrick, President and CEO of Volunteers of America Michigan, suggests:

  • If someone asks you to donate your vehicle, ask that person if he or she works directly for the charity being represented. Questionable vehicle donation programs often accept donations on behalf of other groups and pass along only a small 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, an average of 88 percent of donations go directly to locally run programs, such as homeless shelters and support for veterans. There is no middleman.

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How to avoid being scammed when donating your car

A recommended strategy for avoiding scams is to go local. « 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, a vice president at Charity Navigator, a non-profit organization that helps people vet donation seekers.

Broderick concurs, advising, « Look for local impact first. » And, scams prevention expert Justin Lavelle, a chief officer of BeenVerified, echoes this advice.  “It makes sense because you can visit the charity,” he says, “and meet its people and discover more about its work and operations.”

Lavelle also agrees with the others over additional homework you should do, and recommends you:

  • Check with your local Better Business Bureau to make sure the charity you’re looking to donate with is reputable.
  • Request the charity’s 501(c)(3) letter granted by the IRS [see below], 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 preprinted forms, uniforms, and a branded tow vehicle before you sign over 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. True, it might still be a good cause, but your suspicions should be aroused.

If you’re in any doubt, you can check whether the organization is qualified with 501(c)(3) status by calling the IRS toll-free on (877) 829-5500, or by using the IRS 501(c)(3) look-up tool at its website.

What to do when you hand over your vehicle

One way to save your charity money is to simply drive your car or truck to its premises, eliminating the cost of collection. Of course, that only works if the vehicle’s running well, and you’ve chosen a local good cause.

If you opt for collection from your home, you have a last chance to weigh up the legitimacy of the organization to which you’re donating. If you become suspicious during that process, don’t hesitate to call the whole thing off.

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, and those may also be responsible for subsequently disposing of it.

However, it’s a good sign if the specialist towing company appears reputable, with branding on the tow truck and driver’s uniform, and properly prepared paperwork.

Don’t pay fees

« Legitimate vehicle donations should be straightforward and simple, with absolutely no charges — no towing fees or paperwork fees, for example, » says Broderick. And he says Volunteers of America often completes donations within 24 hours of a call offering one, though other (and particularly smaller) charities may take longer.

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