Definitely Avoid These Mistakes When Donating Your Car

Donating your vehicle can be a great way to give something of value to a charity you care about. In some cases, the vehicle may be used by volunteers, given to someone in the community who needs it, or even sold at an auto auction and the proceeds used by the charity.

But there are a few things you should know before you arrange to cancel your car insurance policy, hop into your vehicle, and take it to your preferred charity. Here are five moves you should avoid when donating your car.

1. Not thoroughly researching the charity

This is important because you want to ensure your vehicle goes to a cause you really care about and that it is a legitimate charity.

You can do some initial research using the website CharityNavigator to learn about the organization and how it spends its money. Also, look at the organization's website to find out more information about it and ask friends and family if they've heard anything about the organization.

2. Forgetting to cancel the insurance and sign over the title

While it may seem obvious, you want to make sure you cancel your car insurance and sign over the title to the charity. Organizations that regularly take vehicle donations will likely have a form to fill out and a good system in place to ensure the title is signed over.

But canceling your insurance policy is something you'll need to remember to do. Just ensure you're still covered up to the time when you hand the vehicle over.

3. Not delivering the car yourself

You should consider dropping off the car yourself once you've made the arrangements. There are some companies that will charge to deliver the vehicle, which defeats the purpose of donating it.

Taking the vehicle to the charity yourself will ensure it receives the car and gets the maximum benefit from the donation.

4. Overestimating your tax deduction

There are some limits to how you can claim the value of the donated car on your taxes. For example, if the vehicle will be sold by the charity, you can only deduct the amount it sells for, according to TurboTax.

This means that even if you use Kelley Blue Book to estimate the vehicle's worth, you can't claim that value as your deduction unless it sells for that amount. The only exception is that if the car sells for less than $500, you may be able to claim a deduction up to $500, according to the IRS.

The IRS also says that if your deduction is over $5,000, you'll need to obtain a written appraisal proving that your vehicle was worth the amount you claim. You can read all of the IRS requirements and find the necessary donation forms on its website.

5. Forgetting to get a receipt of the donation

As with any tax-deductible event, you want a good paper trail. If you choose a large and reputable charity, it will likely provide you with documentation of the donation.

Having an official receipt from the charity will help you keep accurate tax records. TurboTax says that if the organization sells the vehicle, it should provide documentation of the sale within 30 days.

It may be best just to give money or your time

While there are some cases when donating your vehicle to charity makes sense, it may be easier for the organization and more beneficial to donate your time or just give money directly.

And if you really want to use your vehicle for a good cause, sell it yourself and then write a check. You'll avoid some of the mistakes listed above, and the charity -- like everyone -- probably prefers cash anyway.