Car Donation Tax Deduction Thinking of donating your clunker to charity for a nice tax deduction? Proceed with caution. The gifting of used cars to “charities” has become a favorite way for Americans to dispose of unwanted vehicles.
And why not? You can avoid the headache of selling or junking the car, help a charitable cause and lower your tax burden all at the same time Car Donation.
- 1 Car Donation Tax Deduction
- 2 Tax Benefits of Donating a Car
- 3 Donating a car to charity? You might want to pump the brakes
- 4 Donating a Car for Tax Credit
Car Donation Tax Deduction
Donate Car for a Tax Credit van or another vehicle to charity is perhaps the largest single charitable contribution you may give in your lifetime. Your motivation may be an act of convenience or benevolence, either way, it’s important to be assured that you could obtain the maximum tax deduction allowed.
Tax Benefits of Donating a Car
Step 1: Find out how much the charity sold the car for
Use the price the charity obtains for selling your car as the amount of your deduction. For example, if the charity sells the car at auction for $3,000, your deduction is limited to $3,000, even if the fair market value is $4,500.
However, if the charity sells the car at a significant discount to a needy individual, or keeps the car for its own internal use, then you can claim a deduction for its fair market value.
If the charity sells your car sells for $500 or less, you can deduct $500 or your car’s fair market value, whichever is less. For example, if your car is valued at $650 but sells for $350, you can deduct $500.
Also Read: Car Accident Lawyer
Most charities will report the sales price of your car to you on Form 1098-C.
Step 2: Determine the car’s fair market value
To estimate your car’s fair market value to calculate your deduction, the IRS suggests that you use a reputable used-car price guide. Consider consulting Kelley Blue Book, a recent copy or online, for example. Search the private party prices for your vehicle based on its make, model, and overall condition.
Step 3: Claiming the deduction
In order to claim a deduction for your donated car, you must have documentation of your donation. At a minimum, the documentation you receive from the charity must include:
- Your name
- The vehicle identification number
- The date of your donation
- A statement describing any goods and services you received
Donating a car to charity? You might want to pump the brakes
- Donating a car could be one of the least cost-effective ways to aid a charity, says an industry expert.
- The car-donation industry is riddled with fraud and deception, with multiple states investigating outfits for false advertising and self-dealing.
- These eight tips can help donors protect themselves while trying to help out others.
Report the amount of your deduction on Schedule A. Since you can only claim a deduction for your car donation if you itemize, the total of all your eligible expenses on Schedule A must exceed the standard deduction amount for your filing status.
Step 4: Additional forms you’ll need
Complete Form 8283 if your car donation deduction is more than $500.
- If your deduction is between $501 and $5,000, you must complete Section A.
- If your deduction is greater than $5,000, you must complete Section B.
- If you complete Section B, you must also obtain a written appraisal as documentation.
When you use TurboTax to prepare your tax return, we’ll ask simple questions and fill in all the right forms for you.
Donating a Car for Tax Credit
The tax law that took effect back in January of 2005 has helped make things less confusing. Because of the IRS, car donation is now less complicated in determining your cars value. Before 2005, tax benefits of donating a car were based on inflated book values, which tend to get less reliable as the car becomes older. With this new law, the amount you can deduct for your vehicle donation is precisely related to the amount it sells for.
- We make it simple to get the maximum tax benefits of donating a car. Call us or fill out our easy on-line form and we take care of everything else.
- Your car is professionally towed at no expense to you, and then sold at auction.
- The proceeds from the sale benefit the charity you have chosen and you will receive a receipt for your tax purposes.
IRS Car Donation Rules to be Aware of
For a car donation to be eligible for a tax benefit, the vehicle must be donated to a tax-exempt nonprofit organization that falls under IRS section 501(c)(3) which can receive tax-deductible donations. At Donate A Car, we have already done the work for you in providing a large list of trusted charities that meet this requirement. You can rest assured that whichever nonprofit organization you choose on our site to benefit from your car donation, that they are allowed to receive tax-deductible donations.
After your donated car is sold at auction, you will receive an IRS Tax Form 1098-C in the mail providing the amount you are allowed to deduct on your taxes.
- If your donated car sells for under $500, you are allowed to claim the fair market value of your car up to $500.
- If your donated cars sells for more than $500, you are allowed to claim the precise dollar amount that your car was sold for. We will provide you a completed IRS Tax Form 1098-C with your donated vehicle’s sales amount within 30 days after the sale.
- If your donated car sells for over $5000, you’ll also need IRS Tax Form 8283. When filing taxes, you will need to fill out IRS Form 8283 Section B which must include the signature of an authorized official of the charity.
IRS Publication 4303
When a donated car sells for more than $500, the precise amount it sold for will be reported on the receipt that is mailed to you. This is the amount of your vehicle donation tax deduction. If your donated vehicle sells for less than $500, you can claim the fair market value (FMV) of your car up to $500.
What is Fair Market Value
Fair Market Value is basically the price you would reasonably expect to get for your car when selling it on the open market. The FMV of a vehicle is not generally the same as “blue book” value since elements like excessive wear on the car’s body or engine trouble would lessen the car’s value and notable improvements or upgrades would increase its value. Determining the FMV of a car is based on the vehicle’s year, make, model, mileage, and condition. The mechanical history of your car can also affect its FMV. A great resource to accurately determine the FMV of your car is Kelley Blue Book.
Paperwork Needed When Filing for a Tax Deduction
For a tax deduction of $500 or less, the IRS will need:
- The name of the charity, information of your donated vehicle, and information if any goods or services were received and what their value was.
- This information is typically found on the receipt that will be sent to you.
For a tax deduction of more than $500 to less than $5000, the IRS will need:
- The name of the charity, information of your donated vehicle, and information if any goods or services were received and what their value was
- Form 1098-C Copy B –OR- a legal substitute
- if you are filing on-line – form 8453.
For a tax deduction of more than $5000, the IRS will need:
- IRS Form 8283 signed by an official of the charity
- Form 1098-C or a legal substitute like the receipt from the charity
You can claim your tax deduction in the year that you donated your car. Be sure to include all the needed documentation as shown above with your federal income tax return. To find out if your car donation qualifies for a state tax deduction, check with your state’s tax department.
This guide is a general source of useful information and not intended to replace professional tax advice. Donate A Car’s services do not include accounting, legal, or tax advice. If that is needed, we suggest you seek out the services of a trusted professional in that industry.