Donating a vehicle to charity, such as an automobile, boat, or even a plane, can have both practical and tax-related benefits to donors despite some IRS limitations on these gifts. For donors to realize the benefits, a qualified 501(c)(3) charity must accept the gift. This article will discuss practical considerations for charities who are presented with an opportunity to accept vehicle donations.
1. Title, Liens, and Insurance
When considering whether to accept a vehicle charitable donation, charities will want to ensure that there are no liens placed on the vehicle before donors transfer title. Liens can be placed on the vehicle by institutions who provide financing for the initial vehicle purchase, or by service providers (think storage and mechanics). Charities will want to track this information upfront, so that lienholders cannot prevent the change in title. Charities may still want to initially consider vehicle donations that have liens, so long as the liens are extinguished by the donor paying the full satisfaction of the balance prior to a transfer in title.
Many charities can use donated vehicles to help transport volunteers or otherwise further their mission. Charities who utilize these vehicles should obtain car insurance to ensure their organization is protected. This usually a requirement in every state. Even if a charity can quickly dispose of a vehicle, it should still consider obtaining insurance on the vehicle until it releases control to a third party. Often, insurance companies will waive standard fees when working with charities, and there are even charity-specific insurance companies that can provide coverage at a preferred rate.
2. Storing, Transporting and Selling the Vehicle
Another important consideration for donations of vehicles is the logistics behind storing, transporting and maintaining a vehicle gift prior to acceptance. While the proposition of a vehicle donation may sound appealing at first, charities should understand the potential costs, staff time, and reporting requirements it will have to incur. For example, a charity could find itself paying high dollar amounts for storing the vehicle. However, if the charity has the means to store the vehicle themselves, and there is a clear, quick path to liquidation that has been identified, then this process may be manageable and beneficial.
A high-value vehicle which does not require much maintenance and is easily sold may make the decision to accept a vehicle donation “worth it” to the charity. Gathering reliable information and documents sourcing the vehicle’s value is crucial to the charity’s due diligence in considering these types of gifts. On the other hand, if a charity receives a vehicle and can only liquidate by selling its parts, it will want to consider the price point for the parts, whether likely buyer(s) could be identified, and the possible numbers and methods to sell. The latter circumstance is extremely time-intensive and would be challenging for all but the most specialized charities.
Whether to accept a vehicle donation is not always an easy decision for non-profits to make. Charities will want to ensure they are correctly tracking information about the proposed gift, implementing procedures and requisite agreements for the initial donation, and following IRS rules on acceptance and liquidation. The IRS-published “A Charity’s Guide to Car Donations” offers much insight for charities considering such donations.