Donating a car has several benefits – it reduces the stress of junking or selling the car, helps out a charity, and lowers one’s tax burden. As a result, many people have been opting for these donations. However, the experience is not as hunky-dory as it sounds. Before donating, one must understand the process well and avoid certain mistakes to avoid scams or traps. Read on to learn more about them.

Failing to research the charity
When donating a car, one must start by checking the charity’s legitimacy and that it supports a cause one truly cares about. Not only will this help establish their trustworthiness and credibility, but it will also give one peace of mind regarding their donation. For the initial round of research, donors can look up charity reviews and ratings online. This can help shortlist a few options. For a thorough approach, consider visiting these charities in person and understanding what they do and how they do it. Speak to friends and family to learn if they have any valuable advice or insights to offer.

Not verifying the charities’ tax-exempt status
Donors who are looking for tax exemptions must complete this step. Ensure the charity is considered tax-exempt under section 501(c)(3) of the Internal Revenue Code. Only places of worship are considered exempt from this rule.

One can check the charities’ tax-exempt status online or ask them for their IRS exemption letter.

Failing to understand how deductions work
With most car donations, the vehicle is resold in auctions via a third party. The gavel price at this sale determines the value of one’s donation, which can then be claimed for tax purposes. This price varies greatly depending on the condition of the car. It is the charity’s responsibility to inform the donor about the final sale amount.

In some instances, the charity may not resell the car. Instead, they may use it to help people or transport goods. In these cases, donors can claim the fair market value of their old vehicle. The fair market value can be found in vehicle pricing guides. When using these, ensure that one checks the correct model, year, and condition of the listed car.

This is also a good time to start collecting information about the donation. Any car valued at over $500 will need a written acknowledgment from the charity. Donors are also required to fill out IRS Form 8283 when filing their annual taxes. For cars valued over $5000, donors must attach a written appraisal with their forms. One may also need to supplement these details with more information such as the donation receipt from the charity, year, make, model, and Vehicle Identification Number (VIN) of the vehicle, and a statement from the charity that the vehicle was sold between two unrelated parties, without any other exchange of goods or services (to qualify as a donation).

Not understanding these deduction amounts, their estimates, and how they work could cause a lot of confusion when filing taxes, leading to legal hassle with the IRS. Take some time to fully grasp the process before donating.

Forgetting to cancel the insurance and sign over the title
Although most charities have a long process in place to ensure that the documentation is in order, donors must be vigilant about the same. The title deed should be signed over to the charity, and the car insurance policy must be canceled when the donation is made. The title must include an accurate odometer reading, the owner’s notarized signature, and any documentation from the bank regarding paid-off liens. Arrange for this transfer before the car leaves one’s property to help avoid any liabilities (such as illegal parking, towing, or accidents).

Having the car picked up by someone else
Once the donation has been finalized, try to drop off the vehicle in person. Some charities or third-party vendors may charge to deliver the car, leading to additional costs. It is best to drop the car off personally to maximize the benefits and ensure that the charity receives one’s donation.

Not getting a receipt of the donation
For every tax benefit, one must always work with a paper trail. Donating to charities that maintain detailed records of the donation may be better. When doing so, double-check to ascertain that one has received an official receipt to maintain tax records. Once the charity has sold the vehicle, the sale documentation must reach the owner within 30 days.

Failing to learn who benefits from the donation
Every charity does not operate with the same level of transparency, which can make it difficult for donors to know where their donations are used. For instance, many charities use for-profit intermediaries to manage their donations, which minimizes the overall value of the act. To avoid this trap, look for a charity that maintains complete clarity and transparency during the donation process.

To avoid some of these mistakes, donors can also consider selling their car themselves and then donating to their preferred charity.