By Mike Leidemann
Advertiser Transportation Writer

A growing number of Hawai'i residents are finding out that it pays to donate your old automobile to charity. As the tax filing deadline approaches, however, the IRS is warning those people to be sure their deal is on the up-and-up.

Donating an old car or truck, rather than selling or junking it, has grown increasingly popular in recent years. The appeal is simple: The tax break seems worth more than the car itself — and it's often easier to donate than to sell. A number of local nonprofit groups, from Hawai'i Public Radio to Christian Family Charities, participate in auto donation programs.

"When done properly, donating a used car can help both the charity and taxpayers," said IRS commissioner Charles Rossotti.

Problems start, though, when people get a little greedy on their tax returns. The IRS warns owners to make sure their cars are given only to qualified charities and not to overvalue their vehicles.

The IRS permits owners to deduct the "fair market value" of a vehicle, but that isn't necessarily the same as the "full Blue Book" price that many charities tell donors they can use. The IRS said owners should not claim full value unless the car is in perfect working order with low mileage.

The popularity of the car-donation programs has also given rise to a number of private companies accepting cars and promising to pay the charities a small fee; sometimes the charity winds up with only 1 or 2 percent of the total proceeds, the IRS says.

Donors should ask the charities how much money they plan to receive from a car. In many cases, it would be far better for the charity if you sold the car yourself, then sent all the money to the charitable organization.

The IRS offers these other suggestions for those thinking about donating a vehicle to charity:

• Be sure that the organization is qualified to receive deductible contributions. Of course, you can give your auto to anyone, but you can't always claim the deduction on your taxes.
• Ask questions about how the donation will be used. Is the group soliciting the vehicle a charity itself or a private fund-raising group? What will be done with the vehicle? Will it be fixed up and given to the poor and needy? Will it be resold? If so, how much of the proceeds actually go to charity?
• Verify the value of your donation. If you are claiming the vehicle is worth more than $5,000, IRS Form 8283 must be completed and signed by someone who has independently appraised the vehicle.
• Be sure you are going to itemize your deductions. A donated vehicle can't be claimed on a tax return unless the filer is using itemized deductions. Less than one-third of all taxpayers itemized their deductions last year.
• Document the contribution. You'll probably never need to show the information, but taxpayers must still be able to document the donation and the car's fair market value if they are challenged in an audit.
• Transfer the ownership. Generally officials ask the donor to transfer the car title to the charity's name and make a copy of the title transfer when possible.

Mike Leidemann's Drive Time column appears every Tuesday. Reach him at 525-5460 or mleidemann@honoluluadvertiser.com.