A car donation to charity can provide significant tax savings if you include it in your charitable contribution deduction.
However, you should do a little planning to maximize the tax savings associated with your donation.
Many charitable causes will accept cars and other motor vehicles as donations, as there is no tax law that prohibits you from donating your car to charity.
One of the main problems with claiming a deduction for a donated car is that it is difficult to surpass the standard deduction.
When you donate a vehicle to a charity, they usually sell it and pocket the proceeds. If that’s the case, then you can only deduct the amount that the charity received from the sale.
For example, if you think your car is worth $5,000 and the charity sells it for $3,800, your deduction is $3,800. You will receive a Form 1098-C from the charity indicating the amount that your car sold for.
In cases where the charity sells the car for $500 or less, you can deduct $500 or your car’s fair value, whichever is lower. In the case that your car is valued at $850 and is sold by the charity for $450, you may deduct $500.
There are times in which charities use donated cars as part of their business or fix them up to give to people in need. If this is the case, you can use a reliable used car price guide, such as Kelley Blue Book or Edmunds.com, to determine the fair market value of your vehicle.
You must report your deduction on Schedule A of your federal income tax return.
If the amount of your car donation exceeds $500, you must also fill out IRS Form 8283. You should fill out part A of the form if the deduction for the car is between $501 and $5,000. If the deduction for the car is more than $5,000, you will need to complete part B of the form and include an appraisal from a qualified appraiser.
Contributing to a cause
It is a good idea to call the charity that you would like to donate the car to and ask if it accepts vehicle donations. If not, there are plenty of charities that accept such donations: United Way, Goodwill, Habitat for Humanity, The Salvation Army, as well as many others.
If you wish to donate your car to a charity, you must provide documentation from the charity with your name, vehicle identification number, and the date you donated.
In the event that you receive anything of value from the charity as a result of your donation, you must include it as well. Choose a charity that offers free towing in order to simplify the process of donating the car.
A general rule of thumb is that you should always seek the advice of a certified public accountant before making any donations.