Type of Car Donation Programs

Car donation or charitable car donation is quite a common practice of giving away those cars and other types of vehicles to charity organization, which are of no use to the owner. In the US, such car donations are eligible for a tax benefit; as such type of donation of one’s asset has been quite popular. For the vehicles which goes at a value less than $500, the money of the tax deduction is evaluated from the donor's own analysis and study of the car's value, even if the charity did not get the same value from reselling the car.

Tax deductions for more than $500 of car donations are limited to the selling price of the car which is usually collected through auction.

Types of Car Donation Programs

There are generally four types of car donation programs which are usually witnessed and the tax exemptions in return for a charity and its donors.

Charity Uses or Distributes Cars : The charity facilitates contributed cars in its charitable program or distributes the cars to the needy people. The program must not affect the charity’s tax exempt status adversely. In such cases donors may apply for the tax benefits for their donations in case all formalities and requirements are met.

Charity Sells Contributed Cars: This program is quite identical to the above said program, the only difference is here the charity sells the donated cars and facilitates the amount to fund its charitable need and programs. In this situation also the donor can opt for getting the tax deduction if all requirements are fulfilled.

Charity Hires Agent to Run Car Donation Program : The charity hires a for-profit firm or private agent to run this car donation program. The charity and the for-profit firm are expected to establish an agency association that is applicable under the state law.

Generally, such agency association is established where the parties mutually agree that the for-profit entity will work on behalf of the charity and that the for-profit entity’s activities will be supervised by the charity.  In this way the charity actively monitors the program operations and has the right to renew or review all contracts, create rules of conduct, select or change program heads, approve or change all advertising, and evaluate the program’s books and records.

For-Profit Entity Gets and Sells Cars Using Charity’s Name: In this type of car donation program, the charity offers the for-profit entity the right to facilitate the charity’s name for soliciting donations of used cars. Under these circumstances, the charity gets either a flat fee or a part of the proceeds from the sale of the donated cars to fund its charitable programs. The charity cannot interfere in the for-profit entity’s activities. Unlike the other car donation programs, the charity does not establish any agency association with the for-profit entity legal under applicable state law; hence this program is not actually charity’s program.

As in this type of car donation program, the for profit entity is not working for charity as an agent, the donors’ contributions are given to the for-profit entity and are not considered as made to the charity. The charity doesn’t have any right to receive tax-deductible contributions in this case. The for-profit agent or firm and the charity are not expected to mislead the public by saying that the donations are deductible in the form of offering written acknowledgment that the "contribution" is deductible. This type of misleading statement may land the charity or the for-profit entity in trouble and it may result in facing adverse tax consequences.