Turning Cars into Cash for Ministry

Five guidelines for accepting vehicle donations

Charities often invite people to donate used cars, trucks, or boats to support their nonprofit work. Turning cars into cash can benefit your ministry if you know how to handle the paperwork. Here are five guidelines for accepting vehicle donations.

1. Transfer the Title

When accepting a vehicle donation, be sure to obtain a clean title to the vehicle. This eliminates paperwork problems for the person who will buy it from you. Here’s how: Require donors to give you a vehicle’s title and promptly file any forms needed to transfer the title to your ministry. Some states ask you to complete this step within 30 days. Laws vary by state, so learn what your state’s motor vehicle department (BMV or DMV) requires.

2. Provide Written Acknowledgment

The donor will need written acknowledgment from your ministry to receive a tax deduction if the vehicle is worth more than $250. Generally, this form should include the following:

Ministry name
Donor name
Donation date
Vehicle description (model, color, year, etc.)
Vehicle identification number (VIN)
Taxpayer identification numbers (donor and ministry)
A statement that no goods or services were provided by your ministry in return for the contribution

For donations valued at $500 or more, your ministry may need to file IRS Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes. You can also use this form for donor acknowledgement.

Ideally, your ministry should provide written acknowledgement within 30 days of the donation (if your ministry keeps the vehicle) or within 30 days of its sale. Further documentation may be required. You may find it helpful to speak with a tax attorney or certified public accountant. These two resources from the IRS provide additional guidance:

3. Estimate Vehicle’s Value

Donors may want to obtain the vehicle’s value for tax purposes. You can provide this information in one of three ways:

Have each vehicle appraised.
Estimate its Kelley Blue Book or Edmunds value, given the vehicle’s condition.
Tell each donor the amount your ministry receives from the vehicle’s eventual sale.

It’s important to note that the IRS generally requires donors to claim only the actual amount a charity receives from a vehicle’s sale. There are only four conditions under which the IRS allows a donor to claim a donated vehicle’s fair market value:

A vehicle sells for less than $500. If your ministry sells a car at auction for $250, but its fair market value was $400, the donor can claim a $400 deduction.
Your ministry uses the vehicle for charity. If your ministry uses a donated vehicle to do mission work, such as delivering meals to shut-ins, a donor can deduct the vehicle’s fair market value.
Your ministry does overhauls. If your ministry makes major improvements that prolong a vehicle’s life and increase its value before selling it, a donor can deduct the vehicle’s fair market value. Minor repairs or cleaning don’t qualify.
A vehicle is donated or sold to a person in need. If your ministry gives donated vehicles to people who need transportation or sells them at low prices for the same purpose, a donor may deduct her vehicle’s fair market value.

4. File Tax Forms

The donor and your ministry may have to file certain tax forms, depending on the donation’s tax value. Here are the most common:

Form 8283: Noncash Charitable Contributions, Section A. A donor is to complete this form if claiming a deduction worth more than $500.
Form 8283: Noncash Charitable Contributions, Section B. A donor is to complete this form and obtain an appraisal if claiming a deduction worth more than $5,000. An authorized official of your ministry must sign the donor’s form. If your ministry sells or disposes of a vehicle requiring Section B documentation within two years, it must also complete IRS Form 8282.
Form 1098-C: Contributions of Motor Vehicles, Boats, and Airplanes. This form is required for vehicle donations valued at $500 or more.

5. Follow Tax Rules on Benevolence

If your ministry plans to give or sell donated vehicles to people who need transportation, it’s important to understand tax rules regarding benevolence. Generally, the IRS considers benevolence to people who truly need assistance to further a ministry's exempt purpose. Generally, these are people who lack life’s necessities due to poverty or temporary distress. You’re encouraged to consult with a CPA or locally licensed attorney to ensure that any people your ministry intends to bless with free or low-cost vehicles would qualify as “needy” under federal tax guidelines.