Car Donation Programs - Proceed with Caution
The Attorney General provides Consumer Alerts to inform the public of unfair, misleading, or deceptive business practices, and to provide information and guidance on other issues of concern. Consumer Alerts are not legal advice, legal authority, or a binding legal opinion from the Department of Attorney General.
CAR DONATION PROGRAMS - PROCEED WITH CAUTION
(Or Things You "Auto" Know About Donating Your Car)
It sounds so tempting. The advertisement or solicitation says: "Receive full blue book value! You determine the value of donation! Any condition of car, even junkers! Free pickup!"
You think: "This is great! I can get rid of that clunker, get a healthy tax deduction, and help a charity, too!"
But, you should also ask: "Will my donation really help a charity or someone in need? Is my donation really deductible on my taxes? If so, how much can I deduct?"
HOW WILL MY DONATION HELP A CHARITY?
First, if you think your old car will be fixed up for someone in need to drive to work -- think again. Only a few charities attempt to pass vehicles on to needy members of the public. The fate of your lovable clunker is more likely the car auction or the junkyard for salvage value only.
Three types of vehicle donation program arrangements are primarily used in Michigan:
1. The charity operates the program itself, thus keeping the benefits (after deducting operating costs such as towing and auction fees) for its charitable purpose.
2. The charity contracts with someone to run the donation program for a percentage of sales or a fee.
3. The charity merely gives a professional fundraiser or business permission to use its name for a fixed monthly fee. You, the donor, are led into thinking that your donation is to ABC Charity; but it really goes to XYZ Fundraiser. The charity will receive its monthly payment regardless of whether you give anything to this program.
IS MY DONATION DEDUCTIBLE?
Your donation to a charity may be deductible if your car is donated to a "qualified organization" eligible to receive tax-deductible charitable contributions. If the charity is not a qualified 501(c)(3) organization, your donation may not be deductible. See IRS Publication 78 or search online for charities through the IRS's website at http://www.irs.gov/charities/article/0,,id=96136,00.html
HOW MUCH CAN I DEDUCT ON MY TAX RETURN?
According to IRS publications, the amount you may deduct depends on factors such as
1. whether you claim a deduction of more than $500;
2. the gross proceeds from the sale of car by the charity; and
3. the fair market value of the car.
Generally, if you claim more than $500 as deduction, you can deduct the smaller amount -- the gross proceeds from the sale of the car by the organization, or the car's fair market value. Different rules apply if you claim a deduction of $500 or less. For more information, see IRS Publication 526 or consult your tax adviser. A copy of the publication is available on the IRS's website at http://www.irs.gov/pub/irs-pdf/p526.pdf
MAY I RECEIVE A STATE TAX CREDIT FOR MY DONATION?
Michigan law allows a taxpayer under certain circumstances to claim a nonrefundable credit against state tax for the donation of an automobile. The taxpayer must donate the automobile to an organization that is listed by the Michigan Department of Treasury as qualified. The maximum credit amount is $50 for individuals, $100 for joint filers or businesses. You must obtain a Donor Tax Credit Certificate for Donated Vehicle from the qualified organization. For more information, go to the Treasury Department's website at http://www.michigan.gov/documents/taxes/4288_385523_7.pdf or consult your tax adviser.
WHAT DO I NEED TO KNOW ABOUT PASSING TITLE TO THE CHARITY?
Be very cautious when donating an automobile if you are not accompanying the recipient to the Secretary of State's office to transfer title. If the title is not reassigned to a charity or person who is receiving the donated vehicle, then you are presumed to be the owner of the automobile, and you may be liable for tickets, towing, and storage fees. In a case where the transaction will not be completed at the Secretary of State's office, you must have a "record of the sale" in addition to signing over the title.
Michigan law requires a person who has donated a vehicle to keep a photocopy of the reassigned title or record of the "sale" for 18 months. A record of sale is a form or document that includes the name, address, driver license number, and signature of the person to whom the vehicle is sold and the purchase price and date of sale of the vehicle. For more information contact the Michigan Secretary of State's office or visit their website at www.michigan.gov/sos
WHAT ELSE DO I NEED TO KNOW?
Remember, if you donate your car, always ask for a federal Form 1098-C (Contributions of Motor Vehicles, Boats, and Airplanes) or a statement containing the same information from the charity. If you do not attach the Form 1098-C or a statement containing the same information with your tax return when you file your taxes, your donation will not be deductible. See IRS Publication 526.
Also, most organizations asking for a donation of your car in Michigan must be licensed by the office of the Attorney General. You may check the list of licensed charities or fundraisers on the Attorney General's website at www.michigan.gov/ag, by clicking on Charities and scrolling down to Lists of Charities and their Fundraisers, or by calling 517-373-1152. Please call this number if the organization does not appear to be licensed.
For more general information about charitable contributions, visit the IRS's website at http://www.irs.gov/charities/contributors/index.html or consult a certified tax adviser.
WHERE CAN I GO FOR HELP?
Consumers may also contact the Attorney General's Charitable Trust Section at:
Consumer Protection Division
P.O. Box 30214
Lansing, MI 48909