5 Biggest Mistakes People Make When Donating Vehicles to Charity

Donating a vehicle, whether a car, truck, or boat, is often a win-win decision for both you and the charity. You get rid of something you now longer need that’s taking up space (and money) and get a tax deduction in the process, while a worthy cause gets a nice sum of cash to help support its mission.

The actual process of donating is usually quite simple, but there are ways that it can go wrong. If you’re thinking of donating a big-ticket item like a car or boat, make sure you avoid these common mistakes.

1. Donating a Worthless Vehicle

One primary reason that many people opt to donate old boats and cars is that the condition has deteriorated to the point where trying to sell the item would be an exercise in futility. Donating to a worthy cause not only saves the trouble of appropriately disposing of the vehicle, but also offers the added bonus of a tax deduction.

In the past, this was usually a good strategy, since IRS rules allowed donors to deduct the entire fair market value on their taxes. That changed in 2005, though, and now, the amount you can deduct from your taxes depends on not on what the market says it’s worth, but by how much the charity gains from your donation. In other words, when the charity sells your vehicle after you sign it over, they will send you a receipt detailing how much they received for it — which might be significantly less than you expect. For example, say you donate a boat with a book value of $1,500. It needs some significant work to be seaworthy, though, and the charity can only sell it for $500. As the donor, you can only claim a $500 deduction on your taxes.

The potential for a reduced contribution to report on your taxes is why you should consider donating vehicles before they reach the “point of no return” or need extensive repairs. Waiting until a boat or car can’t be used for anything but parts or scrap is not going to get you the maximum deduction.

2. Not Getting a Receipt

If the IRS is clear about one thing, it’s that they aren’t going take your word for it on deductions. If you are claiming a deduction for a donation to charity, it’s vital that you have a receipt detailing your donation, as the IRS now requires donors to include that documentation with their tax return. When the vehicle is sold, the charity has 30 days from the date of the donation to send you a receipt detailing the value of your contribution. If you do not receive a receipt, follow up with the organization — otherwise, you may not be able to claim the deduction.

3. Not Getting Paperwork in Order

In order to donate a vehicle, you must be able to provide proof of ownership and legal authorization to transfer ownership to the organization. In most cases, that means having a copy of the registration and title to the vehicle; in some cases, you may be able to avoid having to renew the registration on the vehicle by acquiring a letter from your state stating that you do in fact own the boat.

In some states, like California, if you are missing the title, you can transfer ownership of the boat by filling out the designated form and signing over the vessel to the charity. However, in every case, regardless of the state or the type of vehicle, all of the owners of a vehicle must sign the documents transferring ownership. If you cannot provide those signatures, then you cannot donate the vehicle.

4. Not Removing All Personal Items

It seems obvious, but many people donate vehicles, only to realize days or weeks later that they left something important or valuable in a storage compartment. Most of the time, once you send the boat off with the charity, it’s gone forever, and you cannot retrieve any persona items. Before you say goodbye, check every compartment, cubby, pocket, and drawer to make sure that you aren’t inadvertently giving away more than you bargained for.

5. Not Investigating the Donor Organization

Many organizations that accept donations of vehicles are legitimate and worthy of your support. Some are not. You don’t want to try to take a tax deduction only to find out that the group who has your old car or boat isn’t a legitimate charity. At the very least, make sure that the organization is a recognized nonprofit entity, and that will be using your donation for the stated purpose.

If you avoid these errors and follow the donation process correctly, donating your vehicle can have a positive impact on your tax bill and your community.