The Essential Tools for a Hassle-Free Car Donation Process

Do you have an old clunker vehicle that's taking up space in your garage (or up on blocks on your front lawn)? Or maybe you have a newer vehicle that's in good working condition, but you're tired of paying for the rising costs of insuring it. Donating your car can be a great way to support a favorite charity while getting a tax break. But before you donate your car to charity, make sure you have the right information and documents and you understand how the process works.

Let's look at three essential tools to make your car donation hassle-free -- and maximize the benefits to your nonprofit organization and your bank account.

Tool No. 1: Read the IRS rules for car donations

Before you give away your car, make sure you understand the IRS rules for tax-deductible vehicle donations. According to the IRS, the size of the tax deduction you can get for donating your car depends on how your chosen charity uses the vehicle.

• If the charity decides to sell the car, you can generally deduct the sale price of the vehicle.
• But if the charity keeps the vehicle and makes "significant intervening use" of the car (such as a nonprofit that delivers meals or offers free rides to people in need), you can potentially deduct the fair market value of the car.
• You can also deduct the fair market value of the vehicle if the nonprofit makes significant repairs or improvements to your donated car.

Tool No. 2: Use Charity Navigator to choose a high-performing nonprofit

Want to decide which nonprofit organization will use your donated car to do the most good? Check out Charity Navigator to find eligible 501(c)(3) nonprofit organizations on the national level, or local charities near you. The "501(c)(3)" designation is an important tax classification that nonprofits need to have in order to make car donations tax-deductible. Don't donate your car to an organization unless it has up-to-date 501(c)(3) status.

Charity Navigator can also show you how effective each nonprofit is at using donated funds. Their website ranks hundreds of charities on a range of metrics, such as impact, financial management, organizational culture, and quality of leadership. If you want to make sure your donated car is going to a well-run, highly effective charity that will make a real difference in communities you care about, Charity Navigator is a great tool.

Here are a few national nonprofits that are rated as "four-star charities," the highest ranking from Charity Navigator, and they all accept car donations.

• American Cancer Society
• American Red Cross
• Habitat for Humanity

You can also use Charity Navigator to look up local charities in your area, such as the United Way or other community organizations. Many nonprofit organizations accept donations of vehicles. Just make sure you're donating to a reputable 501(c)(3) that can help you get a tax break for your generosity!

Tool No. 3: Calculate your tax deduction -- and get a receipt

If your car is old and not in good working condition, or if it's being sold for scrap, you can probably only claim a deduction of $500 for your vehicle donation. If your car is in better condition and can command a higher sale price, you might want to claim more than that minimum $500 deduction.

In case your car is worth more than $500, the nonprofit organization should give you a tax receipt called Form 1098-C, to show the IRS that you made a charitable contribution of a qualified vehicle. As part of this tax receipt, the nonprofit is required to give you timely notice of how it used the donated car (whether the organization sold it or continued to use the vehicle as part of its mission) so you can get the correct deduction. Keep your copy of Form 1098-C to include with your tax return. (And make sure to cancel your car insurance policy on the donated vehicle, if you haven't already!)

Keep in mind that according to IRS rules, you can generally claim tax deductions for charitable contributions only if you itemize your deductions. If you take the standard deduction (like most taxpayers do), your charitable giving -- although it's a wonderful thing to do -- unfortunately won't make an impact on your taxes.

Bottom line: Donating your car to charity can be easier than you think! Just make sure you understand the "rules of the road" to prepare for a successful donation.