Some people donate their cars to charities for the purpose of earning tax incentives. The donation process is easy. First, the donor has to look for the charity to which he would donate the vehicle; secondly, an employee of the charity shall personally pick up the vehicle from the donor's home or the charity would give instructions on where to bring said vehicle.
Choosing the charity is never easy. There had been reports of scams involving charitable organizations which abuses the plight of the generous and takes away their vehicles for their personal use. Thus, the following steps shall guide donors on how to choose the right charity and how the donation process takes place:
- Before choosing to donate a vehicle, the donor will be advised by the IRS to research the charity, see if a tax benefit will be derived by the donor from the donation of the vehicle and determine the value of the vehicle. The IRS will also inquire if the donor has other responsibilities to comply with.
- The donor must also consider the following: (a) what kind of use will the vehicle serve the charity; (b) if the vehicle would be sold by the charity, the manner of spending the proceeds of the sale; (c) the programs of the charity which shall receive the funding from the proceeds of the sale; and (d) the efficiency standing of the charity.
The IRS has limited the amount which the donor could write-off on donated vehicles. Before this limitation was set, any donor could write-off the vehicle's full value. But, since the implementation of the limit set forth by the IRS, each donor can only claim the amount for which it was sold. Thus, if the vehicle has a book value of $1800 but the same was sold by the charity for $500, then the latter will be the amount of tax deduction.
The deductible amount will be provided by the charity to the donor within 30 days from receipt of the vehicle donated or within 30 days from the sale thereof, if applicable. The deductible amount will be sent through mail. If the donor has not received the same, he must immediately call on the charity.
Generally, the limit set forth by the IRS for the deduction is only $500. However, if the deductible amount sent by the charity to the donor exceeds the threshold, he must prove that no goods or services were provided in return of the donation, an estimate of the value of goods or services made in exchange of the donation and a statement that the goods and services provided by the charity consisted mainly of intangible religious benefits.