Busting Myths: The Lies You've Been Told About Donating Your Car

If you've got an old car you want to get rid of, donating it to charity may seem like a good option. In theory, it could be a great way to help a worthy cause and cut out some of the hassle of selling. Not only that, but some sites say you can get a tax break on your car donation too.

Unfortunately, the reality is not so simple. For example, some people might get a tax break in some scenarios, but it won't work for everybody. Similarly, there are plenty of legitimate charities that will take car donations, but there are also some fraudsters out there. Here are some of the biggest car donation myths and how you can deal with them.

Myth 1: All car donation charities are legitimate

You may have heard or seen advertisements -- or even received cold calls -- from so-called car donation charities. Sadly, a number of them are not as charitable as they pretend to be. Nonprofit Point's blog has some horror stories of organizations that took people's donations and did very little good. For example, it discusses a company called Fund Raising Partners that raised $1.6 million through vehicle donations in 2015 and only gave 1.7% of it to charity.

What you can do: If, like me, you already have a couple of charities and causes that you know and trust, try contacting them to see if they will take a vehicle donation. Many of them will.

If you're donating your car to an organization you aren't familiar with, do a bit of digging first. Here are a few ways you can check it out:

• See if it is registered as a 501(c)(3) -- a charitable organization -- with the IRS: In addition to showing the group is legitimate, this also matters if you plan to claim a tax deduction. You can use the IRS search tool to find tax exempt organizations.
• Check reviews and ratings on charity background sites: These three are all worth a look:
  • CharityWatch.org
  • CharityNavigator.org
  • Give.org
• Search the charity online and see if there are any reports of fraud: Put in the name of the charity and the word "scam" or "fraud" to see what comes up.

Myth 2: All the money will go to charity

In most situations, when a car is donated to charity, it will often be auctioned off or sold for parts rather than used by the organization. Many charities use third parties to do this, as they are not experts in handling used cars, and those third parties will take a cut. The issue is that in some cases, the charity might get less than 20% of the proceeds of the sale. If your car sold for $1,000, the charity would get less than $200 in that scenario.

What you can do: Find out exactly what percentage will go to the charity involved. The best programs give at least 70% to the charity. You might also sell the car yourself and donate the proceeds.

Myth 3: You'll always be able to claim a tax deduction

You can only claim a tax deduction on a donated car if you itemize your deductions. Around 90% of Americans take the standard deduction, which is a set amount that depends on your filing status. If you're one of them, you wouldn't get tax benefits from donating a car.

Even if you itemize, you'll need to jump through some hoops in terms of paperwork. A lot depends on how the charity uses the car, how much it got by selling your car, and what the fair market value of the car is.

Finally, according to the IRS, if you donate your car to a for-profit company which then gives a percentage to the charity, that donation may not be tax deductible, period. There's a difference between a company that acts as an agent and one that's an independent entity where the charity has no control over its activities. If there's a for-profit company involved, make sure they are acting as an agent.

What you can do: Work out whether your itemized deductions will be higher than your standard deduction. That means calculating how much you could deduct for the following categories: donations to qualified charity, state and local taxes, certain medical costs, property taxes, and home mortgage interest. There are limits or rules for each category, and you'll need to be able to support your claims with receipts or bank statements.

The standard deductions are high enough that in many cases, it doesn't make sense to itemize just so that you can claim the tax deduction on your car donation. For most people standard deductions in 2024 are as follows:

• Married couples filing jointly: $29,200
• Single taxpayers and married individuals filing separately: $14,600
• Heads of households: $21,900

Myth 4: You don't need to do any paperwork

Few things in life happen without a bit of red tape, and car donation is no different. If your name is still on the title for the car, you could be liable if the car gets a ticket or is used for something illegal.

What you can do: Make sure you sign your car's title over to the charity and check out your state's requirements for the record of the sale. In some states, you'll need to remove the license plate before you donate the car.

Get a receipt from the charity. If you plan to claim a tax deduction on the donation, you will need to file a 1098-C for vehicles worth over $500. You may also need to file form 8283. Check with the IRS or a certified tax adviser to make sure you get all the necessary papers.

Consider selling the car yourself and donating the money

The sad truth is that donating a car is not as simple as the adverts make it sound. Indeed, if you have the time, it may make more sense to put yourself in the driver's seat and sell the car yourself. You might be able to raise more money for your selected charity, meaning a bigger boost to their bank account balance.

There are pros and cons to both routes, particularly as selling an old car can be time consuming. However, if you cut out the middleman, you could also split the proceeds between a couple of different charities. You might even put a portion into a savings account or toward the cost of a new car and donate the rest.