Donating a classic car: scams, taxes, and pitfalls
Classic Car – Dan Jendrowski of Benchmark Auto Appraisers L.L.C. is submitting this article of tips on donating classic cars and thought it was helpful, considering how many classic cars get donated toward the end of the year.
Donating a classic car should be a simple and efficient process, but in most cases, it’s not. This is because many donors of classic cars don’t understand that the donation process isn’t always easy. There are potential scams, serious tax issues and other pitfalls that could render the experience financially and morally worthless. Protect your gift by arming yourself with the following critical information about classic car donation to ensure that what you give is used in the best way possible.
Classic Car – Repairs and Safety
Classic car donation is different from traditional car gifting in that the value of antique automobiles is generally much higher than the average modern gifted vehicle. However, this also means that there are often issues with safety and repairs that many donors will seek to correct before gifting the car. Others will prefer to donate the car as-is, even if it’s not road worthy. There are charities that will cater to both types of donors.
Nevertheless, some legal experts recommend that the donor take all steps necessary to professionally correct any potential safety liabilities that could cause problems “down the road.” Alternatively, many donors work with an attorney to have a document drafted that transfers these issues and the task of mitigating them to the receiving party. It’s a small price to pay for peace of mind.
Find a Legitimate Charity to Support
All too often donors do not conduct necessary due diligence when it comes to selecting a charitable organization. There are hundreds of reports from around the country of cars being “donated” inadvertently to a charity that wasn’t approved by the IRS. This means that, in most cases, the donor won’t be able to claim the fair market value of the vehicle as a deduction.
Worse still are the cases where donations have been made to groups that pose as charities but actually sell the donated vehicles for cash profits.
To alleviate these concerns, ask for documentation proving the charity’s status. If you’d feel more comfortable doing your research discreetly, you can confirm a charitable organization’s status online through the Better Business Bureau, GuideStar, or Charity Navigator.
Deal Directly with the Charity
In many cases, advertisements for car donation services or organizations are actually paid for by groups that intercede in the gifting process in order to make a profit. As middlemen, these groups do little more than make arrangements between a donor and a charity and take a large percentage of the gift for themselves. In fact, many in the industry believe that very little money that is gifted in this way actually reaches the charity.
Consequently, it’s important to work directly with the charitable organization whose work you’d like to support. This is the only way to ensure that the maximum value of your gift goes to support the worthy cause you’ve chosen.
Delivering the Classic Car
While tax benefits are a common reason cited for donating a classic car, for most people, it’s about the philanthropic work at hand. If your primary concern is the maximum value for the charity, you should consider delivering your classic car gift directly to the charity. Otherwise, the organization will be forced to pay for transport costs that will ultimately reduce the value of your gift.
Transfer of Ownership
This is critical. You must ensure that a proper transfer of ownership occurs when you make your gift. If the vehicle is not transferred correctly, you could be held responsible for any liabilities the car presents once it leaves your care. This includes parking tickets and related citations, and some possibility of trouble should the car be involved in an accident or crime.
Unfortunately, transferring ownership of a classic car may not be as simple as signing the title over to the charity. To safeguard your gift and maintain your good name.
General Car Donation Tax Rules
Everyone’s tax situation is different, but overall the following are some critical bullet points concerning tax rules and donating a classic car:
Ensure the charity is a 501 (c)(3) nonprofit organization.
If the charity sells your car, it must send you IRS form 1098 C within 30 days. This form indicates how much the organization received for the vehicle.
If the fair market value of your gift is more than $500, you’ll need to file IRS form 8283.
In most cases, if the fair market value of the car is more than $5,000, an independent professional appraisal will be required in order to file for a tax credit.
If the car sells for less than $500 but has a fair market value of at least that, you may be able to earn the full credit.
In order to get credit for your gift on this year’s tax return, you must donate your car by 12/31.
Rules Regarding Use of Your Classic Car Donation
Your tax credit will be directly affected by the way your car is used. In many cases, charitable groups will use donated cars for their transportation needs, as an attraction for fundraisers or other events, or they may give the car to a person in need. Most people will still be able to take the full tax credit if they can show evidence of this type of use. Therefore, it’s important to discuss with the charity how they will use the vehicle before you execute your plan to gift a classic car. The IRS has a pamphlet outlining the rules regarding car donations and what is expected of donors, and it’s worth checking out if you plan to donate a classic car.
Donating a classic car is a powerful way to benefit those in need while reducing your financial burden via a tax credit. However, if not gifted correctly, your philanthropic actions could cause more trouble than they’re worth. To be absolutely certain you go about it in the best way possible, consider discussing your intentions with an attorney or tax advisor (or both) before you drive that old classic off into its next life. Benchmark Auto Appraisers is there for you.
No matter what your donating, The Benchmark Auto Appraisal may also be a tax deduction if you’re donating an AUTO BOAT or MOTORCYCLE.
