The ads are everywhere, encouraging you to "Donate Your Car....Get a Tax Break!" And they're doing their job: In large urban areas, such as New York and Los Angeles, some 10,000 cars are given away to charity and resold each year, says the Council of Better Business Bureaus (CBBB) in Arlington, Va.
Such programs let you ditch an old clunker, help a good cause, and get a tax break. "When you factor in the hassle and haggling involved in selling or trading in the car, donating it...often looks good," says Paul Yurachek, a financial planner at American Express Financial Advisors in Bethesda, Md.
But before handing over your car keys, you should know that the bulk of your donation may not be going to the charity. In fact, says Bennett Weiner, director of the CBBB philanthropic advisory service, many charities rely on for-profit brokers--often towing companies or used-car lots--to pick up and sell the cars. These middlemen may pocket most of the money from the sale, passing on only a small flat fee or tiny percentage to the charity.
COMPLAINTS. Take 1-800-MYCHARITY in Elmont, N.Y., a for profit broker that represents three small charities: the Coalition Against Breast Cancer in Hauppauge, N.Y.; Neo/Presearch Energy Foundation in the Bronx, N.Y.; and Associated Humane Societies in Newark, N.J. Robert Soshnick, an attorney for 1-800-MYCHARITY, says it gives its charities $25 for every non-running junk car and "a percentage of the book-appraised value on nonjunk cars."
But a spokesperson for Associated Humane Societies says that the animal protection group receives a flat fee of $25 for any car worth up to $5,000, and 10% to 20% for more expensive cars (which people rarely give away). "It works out well because we don't have to work in the used-car business," she says.
To determine whether a third-party broker is involved, just call the advertised number, or the charity directly, and ask. Regardless of how the charity gets the cars, at least 60% of your donation should go toward the stated mission, says the National Charities Information Bureau, a watchdog group in New York. For example, the Salvation Army's car donation program brought in $17 million gross in 1998, with 85% going to its alcohol and drug rehabilitation programs, says Lt. Col. Tom Jones, national community relations secretary. The National Kidney Foundation's Cars for Kidneys program raised $10 million last year, with 70% funneled mostly to patient services. Goodwill Industries International auctions cars but also tries to give them directly to people in need. These charities usually handle the cars themselves, but sometimes use middlemen.
You can determine how a charity spends its funds by asking for its annual report or Internal Revenue Service Form 990. Some charities disclose this information on their Web site. You can also contact your state attorney general's office and local Better Business Bureau.
To confirm that the organization soliciting your donation is a legitimate charity, request its IRS Determination Letter, verifying its tax-exempt status under section 501(c)(3) of the Internal Revenue Code. Or look it up on Web sites that list tax-exempt entities: www.irs.ustreas.gov from the IRS and www.guidestar.org from GuideStar, a philanthropic research organization. Keep in mind that the law does not require churches to register for tax-exempt status.
Once you decide to donate your car, be careful about how large an income-tax deduction you take. On Jan. 1, California began requiring that charities inform donors in writing of the vehicle's condition or eventual sale price for tax purposes. But in other states, you must estimate the fair-market value, factoring in condition and mileage yourself. To figure out that amount, refer to a used-car price guide such as the Kelley Blue Book (www.kbb.com) or the National Automobile Dealers Association Official Used Car Guide (www.nada.com). "It's up to the individual to have the appropriate records to support its fair-market value," says Marcus Owens, the director for tax-exempt organizations at the IRS.
Donating your car makes good fiscal sense. Just make sure the worthy cause really gets most of what your car is worth.