Maximize Your Impact: Tips for Donating Your Car the Right Way

If you own a car that you're trying to unload, you might consider trading it in toward the purchase of a new vehicle or selling it to a private party for cash. But if you want to do something incredibly generous and score a tax break in the process, donating your car to a charitable organization is another option.

Doing so could benefit the nonprofit in one of a few different ways. It could sell your vehicle and put the money earned toward operational expenses like staff salaries (the bulk of any nonprofit's budget) or even use it to complete its mission. And you don't have to worry about arranging for the sale of your car or continuing to pay for gas, maintenance, or auto insurance expenses. If this sounds good to you, let's take a closer look at some tips for donating your car.

Ensure you don't need your car

First and foremost, you should make sure you won't miss the car after it's gone! If you still need a vehicle for your everyday life (getting to work, running errands, perhaps the occasional road trip vacation), will you be able to purchase a new one without using your current car as a trade-in or selling it for cash for a down payment? Ideally, the car you're donating truly is an unneeded second vehicle, or you live in a place with adequate public transportation so you'll still be able to get around.

Giving up a car can mean cutting its expenses out of your budget, but it can also mean adding new ones -- ensuring your checking account can support the cost of public transportation or car rentals, for example. In short, ensure that donating the car is actually the right move for you and your personal finances.

Pick a cause you believe in -- and that's legitimate

If you're giving the gift of a car donation, it's a good idea to thoroughly vet any potential organization ahead of time. Charity Navigator aggregates nonprofit organizations and provides information about their tax status, sustainability, and more, so you can check any charity you're considering there.

You'll also need to make sure you'll actually get a break on your taxes for donating your car to a particular organization. It must be registered as a 501(c)(3) nonprofit; as Charity Navigator notes, there are different types of nonprofits, and a donation made to, say, a 501(c)(4) organization generally isn't tax-deductible.

Finally, do your research to find an organization you agree with and want to support. It would be disappointing to donate your car and later find out that the charity has some unsavory views and by giving it your car, you've supported something you don't believe in.

Do the paperwork

Once you've done your homework and found the right organization, it's time for the actual donation. The paperwork part of this is extremely important -- you don't want to get in trouble with the IRS, so hang on to any documentation you receive from the charity during the process. It's important to fully transfer your car's title to the charity; if you don't complete this step, you can be held liable if the car is used in a crime, or owe money for any parking tickets on the car. You'll do this through your state. Be sure you get a receipt for the donation, and you may also receive a Form 1098-C (Contributions of Motor Vehicles, Boats, and Airplanes).

For determining the value of your tax deduction, you'll most likely use the car's fair market value (such as when the charity keeps your car, sells it at a discounted price, or it's worth less than $500), but there are exceptions. If your car is worth more than $5,000 and the charity won't be selling it for cash, you'll need to have it appraised and get that appraisal in writing at least 60 days before you turn it over. The IRS has an excellent guide for vehicle donation you should peruse ahead of time.

And remember, you only qualify for a tax deduction if you itemize on your tax return. If instead, you take the standard deduction, your car donation will not count. And don't forget to remove your license plates when you're done with the car.

Be safe

Finally, keep your eyes and ears open when you're going through the car donation process. Donating a car to charity is a kind action, but if you get linked up with the wrong charity (or perhaps "charity"), you could find yourself taken advantage of. Contrary to what the organization may tell you, you're not allowed to take any tax deduction you want, for example. If something feels wrong or off, or sounds too good to be true, don't go through with the donation. Find another more-deserving organization to donate your car to.

Donating your car can be a good way to unload a vehicle you no longer need and give to a worthy cause at the same time. Follow these tips to ensure you're doing it the right way.