Complete Guide for Tax Savings by Donating a Car in United States

Don't know how or where to donate a car? our primary purpose is helping America's donors make informed giving decisions when they part with their hard-earned dollars by writing a check to charity. In recent years, however, more and more donors are attempting to help themselves, and help others, by donating their used automobiles to charity.

Complete Guide for Tax Savings by Donating a Car in United States

How car donation tax deduction works
 
Donating Your car to charity can result in significant tax savings if you include it in your charitable contribution deduction. However, doing a little planning will ensure that you maximize the tax savings of your donation. The Internal Revenue Service (IRS) requires you to calculate your deduction in one of two ways, depending on how the charity uses your donation. Deductions for cars the charity sells are limited to the sales price. In all other cases, you can use the car's fair market value.

The IRS allows the taxpayer to claim a charitable tax deduction as follows:
  • If the donated vehicle is sold for less than $500, you can claim the fair market value of your vehicle up to $500 or the amount it is sold for if less than fair market value.
  • If the donated vehicle sells for more than $500, you can claim the exact amount for which the vehicle is sold.

By following 8 Non-Profit Charitable Auto Donations tips, you can minimize that risk, and maximize the amount that actually gets to charity. 

#1. Find a Charity That Directly Accepts Car Donations

If at all possible, avoid the for-profit intermediary organizations that advertise so pervasively to handle your car donations. When you work with one of these organizations, they keep the vast majority of the dollars created from your donation. If you can find a charity that handles the transaction themselves, they can keep 100% of their profits. It's possible that the charities you already support have a car-donation program that you don't know about. Check with them first.


Note : You're making a charitable donation, and don't simply give your automobile away to any charity, just because they're a charity. Do a little research, and find a high performing charity that does the kind of work you like, in the region you wish to target and does that work well.

#2. Drive the Car to the Charity, if it Runs

Worthy charities are going to have to pay someone else to handle a pick-up or a tow. This is yet another cost that cuts into the amount that gets to that organization's programs. If you can get the car to them yourself, do it.


#3. If You Have to Use a Intermediary Agency, Research the Percentage that Gets to Charity

The IRS does not require the car donation agencies to contribute a set amount of the auto's proceeds to the intended charities; that amount is negotiated between the charities and the handlers. Try to find an agency that maximizes that amount, and call the charity to confirm that number before you give. The charities are reluctant to criticize the middlemen, because they don't want to lose the dollars they do receive, but state attorney generals are beginning to investigate and even prosecute these for-profit middlemen, for holding themselves out as charities and misleading the public on the amount that is actually reaching charitable causes.

#4. Your Intended Organization is a 501 (c) (3)

While many organizations can claim non-profit status, donations to 501 (c) (4) organizations are generally not tax-deductible. These are political organizations with permission to lobby our government; like Disabled American Veterans or the National Rifle Association. Make sure your intended recipient has 501 (c) (3) public charity status.


#5. Transfer the Car Correctly to the Charity

Some charities will ask you to leave the assignment of ownership space on the charity donation papers blank, so they don't have to re-title the auto. If your charity asks this of you, find another charity. If you don't formally sign your car over to the designated nonprofit, you will be held responsible for any parking tickets that are subsequently incurred, or liable if it's used in a crime. Remember, the charity you give the car to will probably not use your car to deliver meals to the needy, but will simply sell it as quickly as possible. When someone buys it from them at auction and doesn't bother to register that car, it's still yours in the eyes of the law.

#6. Value Your Car Correctly

American Jobs Creation Act of 2004 which prevented taxpayers from simply deducting the published fair market value of vehicles worth more than $500. Instead, the deduction is determined once a car is sold and the charity sends the donor a receipt indicating the exact amount the car garnered at auction.


#7. Find out how much the charity sold the car for

Use the price the charity obtains for your car in a sale 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 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.


#8. Complete Your Paperwork

Non-cash donations are the most common triggers of audits, so it is important to keep thorough documentation of a car donation. Specifically, if your car is valued over $250, then you need to obtain and retain a written acknowledgement from the charity. Additionally, if your car is worth more than $500, you must complete section A of the IRS Form 8283 and attach it to your yearly taxes. Furthermore, if your car is worth over $5,000, then you must have an independent appraisal and fill out section B of IRS Form 8283.


#9. Claiming the deduction

Report the amount of your deduction on line 17 of 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.

If you use TurboTax to prepare your taxes, we’ll help you determine which filing status will get you the biggest tax savings.

#10. Use Fair Market Value (FMV) for the Car

There are several exceptions which allow you to use the Kelley Blue Book or a NADA guide, but you must use the FMV, not simply the highest value listed for the year and make of your car. Use the FMV when:

  • Instead of selling the vehicle, the charity keeps and uses it, the charity makes improvements to the car before selling it.
  • Our car is sold at a discounted price to a person with a low income, or if the car is worth less than $500.

Otherwise, you can only deduct the amount that the charity sells the car for at auction as indicated on the written receipt the charity sends you.


#11. 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.

Again, if you use TurboTax, we’ll ask simple questions and fill in all the right forms for you.

Tips :

  • 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.
  • Most charities will report the sales price of your car to you on Form 1098-C.
Warnings :
  • 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 and a statement describing the goods and services you received, if any.
For more information, please see IRS Publication 4303, A Donor's Guide to Vehicle Donations.