With increasing frequency, radio announcements, classified ads, and television promotions are mentioning used car donations as a giving alternative that can result in a handsome, income tax write-off while also providing a simple way for both individuals and businesses to dispose of unwanted vehicles. Better Business Bureaus around the country have reported increasing interest in donating used cars to local charities and affiliates of national organizations. In a large metropolitan area, about 8,000 to 10,000 cars are typically donated to various groups each year and are then resold to bring in from $4 million to $5 million (gross). Before you dust off your old clunker with visions of driving down deductible easy street, there are a number of points to consider.

Is the Group Eligible to Receive Deductible Car Donations?

Don't assume that a charitable-sounding organization requesting donations is eligible to receive deductible gifts. Ask for a copy of the organization's Internal Revenue Service Determination Letter (generally about 2 pages) that verifies the soliciting group is tax exempt as a charity under section 501 (c) (3) of the Internal Revenue Code. (Note that churches are not required to apply for exempt status, and may not have such a letter.)

Have You Checked Out the Charity?

Ask the organization for copies of its latest annual report and IRS Form 990 that specifies how they spent their funds in the past fiscal year. Check to make sure that the charity is registered to solicit with your state government's charity registration office (usually a division of the state's attorney general's office). Also, contact your local Better Business Bureau for information they may have on file.

What Happens to Donated Cars?

Some charities may state that donated cars will be used to help carry out the group's program service activities (for example, providing transportation for a needy immigrant family). However, if the charity is involved in major promotions for such contributions, chances are that the sheer volume donated will result in most cars not being used but, instead, sold to raise funds for the organization. If an 800-number appears in the ad for used car donations, an out-of-state company might be soliciting for several participating charities.

How Much Does the Charity Get for Cars Sold?

Cars could be sold directly by the charity or through an outside seller, such as an auctioneer or used car dealer. If an outside seller is involved, the charity might receive a flat fee (for example, $100 per vehicle), a percentage of the actual sales price, or a combination of these. In some cases, less than 20% of the actual sale may go to the charity. The charity should disclose the specifics of the financial arrangements. If not, ask.

What About Receipts and Forms?

Ask the charity for a receipt that verifies a car donation was made. For cars that need to be towed-in, the charity may need to mail receipts and titles to the donor. This is all the more reason to check out the charity before making the gift. It is also up to the donor, not the charity, to place an accurate value on the car donation. An official used car price guide is helpful, but the condition of the car should also be considered. If the claimed donated value exceeds $500, the individual or business contributor will need to complete IRS Form 8283 as an attachment to his/her tax return. If the claimed value is over $5,000, the donor will need to obtain a qualified written appraisal of the car.