Charity car donationIf you want to donate your car to charity, a little planning will not only mean a more significant tax deduction but a better chance your old car will be put to good use. It also means you have the time to cancel your car insurance and registration properly.

Select an approved charity: An IRS-recognized 501(c)(3). Consult IRS Publication 4303, “A Donor’s Guide to Vehicle Donations,” and its charitable organizations page, which offers a way to search for tax-exempt organizations.

Double-check your choice at the Better Business Bureau’s National Charity Report Index, which tracks 20 different accountability standards, or, which rates 10,000 charities according to financial health and transparency.

Contact the charity. Ask if the charity will resell the car for cash, offer it to a needy family, or keep it for the organization’s daily use.

A vehicle that is resold for cash (that is, most of them) is deductible only on the sale price of the car rather than its fair market value. If the charity gets only $800 for your $2,500 Ford, you can deduct only the $800. But you can deduct the total fair market value if the charity uses your car in its daily operations, such as deliveries.  Some charities offer vehicles at a discount to families rebuilding their finances; in those cases, the deduction can be higher.

Get a receipt from the charity. The charity must send a notice of sale within 30 days advising you of the car’s sales price.

Terminate your registration and insurance coverage. Don’t just sign the title over and let your insurance and registration lapse.

The state may see in its records that you have a car still registered that is without insurance and penalize you for that. And if the vehicle is in a crash or impounded, you will be looked at as a legal owner.

Your state department of motor vehicles typically will offer a Notice of Transfer of Title and release of liability that you can file once you have signed the car over. That tells the DMV you have sold a vehicle and should be able to cancel your insurance after the sale report.

Don’t just let the policy lapse; if you don’t renew or pay the bill, the policy will be canceled for nonpayment. That can have a major impact on your future car insurance rates.

Your name doesn’t come off the legal title until the new owner registers the car. It’s a good idea to follow up at the DMV later on. You may not be legally liable anymore, but you don’t want to go to court to prove it.

— Michelle Megna contributed to this story.

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Contributing Writer

Shivani Gite is a personal finance and insurance writer with a degree in journalism and mass communication. She is passionate about making insurance topics easy to understand for people and helping them make better financial decisions. When not writing, you can find her reading a book or watching anime.