Why More People Are Choosing to Donate Their Cars

If you itemize deductions on your tax return, you can claim a deduction for any charitable giving you've done throughout the year. This doesn't just include money -- if you donate property, you can take a deduction as well. Many people choose to donate bags of old clothing, but there has been a surge in donating vehicles to charities in recent years. In fact, more than 700,000 vehicles are donated annually in the United States.

Donating your car is a win-win situation for both you and the charity you choose to receive it. And there are a few reasons why.

Tax deductions

The obvious reason to donate your car is to get a tax deduction. If you donate your vehicle, you can deduct the amount of money that the charity sells your car for (you'll get a receipt) or its fair market value in certain circumstances. Plus, you won't be paying auto insurance on an unneeded vehicle.

One key thing to keep in mind is that the amount you're allowed to deduct could easily be greater than your car's trade-in value. If the charity sells your car, it usually does so at an auction. And if the charity keeps the car, sells your car at a discount (to a family in need, for example), or makes substantial improvements before selling it, you can use the vehicle's fair market value (FMV) from Kelley Blue Book or a similar source.

One tip is if you want to maximize your tax deduction and have a working vehicle, ask the charity if it plans to use it. Some -- such as the Salvation Army -- often use donated cars or give them away to families in need. Fair market value is almost always higher than what your car will sell for at auction.

In simple terms, instead of trading your car in to a dealer and getting significantly less than the vehicle's market value, you can donate it and potentially get a tax deduction for a significantly higher amount.

Convenience

You could certainly sell your vehicle yourself, but donating it to charity eliminates the hassles involved. You won't have to list the car for sale or meet potential buyers and deal with test drives and negotiations. Many charities that accept cars will even pick it up for free or arrange for towing. If you need the car gone and don't have much time, donating it is a good option.

Leave your savings alone

If you donate a vehicle, you can get a nice tax deduction and help a cause you care about without dipping into your savings account. Plus, the charity gets a very nice payday -- after all, in most cases a working vehicle is worth more than the donor would likely give to the charity if they were donating cash.

Make sure you donate your car the right way

I recently wrote an article that provided detailed steps to ensure that if you donate your car, you won't run into problems later when you try to take a tax deduction for it. I'd suggest reading it before you donate, but the main ideas are:

• Make sure you donate it to a qualified charity (directly, not through a third-party intermediary business).
• Sign the vehicle's title over to the charity -- don't leave it blank.
• Remove the vehicle from your auto insurance after you sign it over.
• Find out if the charity plans to use your vehicle or sell it, as this determines the value of the deduction.
• Get written documentation from the charity acknowledging receipt of the vehicle.
• Complete the right tax form with your tax return.
• If the vehicle is worth more than $5,000, get an independent appraisal.

There are some excellent reasons to donate a used vehicle to charity (even if it's in bad shape). Make sure you follow the correct steps so you can take full advantage of the deduction to which you're entitled and be sure to consult an experienced tax professional if you have any questions during the process.