Auto donation is a great way to benefit from a tax deduction and support a charitable organization. Donating a car to charity is also a quick and easy way to move a non-running vehicle that you no longer need or want sitting in your driveway. Automobile tax deductions may be available to those who itemize deductions on tax returns and who donate to a registered charity organization. Here are some of the tax benefits that come from auto donate charity and how the process works:
Charitable Deductions
Many charity organizations can accept motor vehicles and cars as auto donations. Some will even tow the vehicle away for you. The IRS requires a person to calculate the tax reduction in one of two ways, based on how the charity plans to use the donation. The first way is to calculate the deduction based on how much the charity sold the vehicle for. Another way is to use the car’s fair market value to calculate your tax deduction.
Steps To Help You Claim a Tax Deduction
You’ll need to itemize your taxes to experience the financial benefit of a car donation during tax time. Below are a few steps to help you claim your tax deduction on your tax return:
Understand How Auto Donation Works
The IRS can allow you as a taxpayer to claim a tax deduction on your donated car under certain circumstances. If your car sells for more than $500, you can claim a tax deduction of the amount for which the vehicle sold. The tax-deductible receipt should include the vehicle’s full sale price. If the car sells for less than $500, you may claim its fair market value up to $500. You are responsible for accurately determining the fair market value of your vehicle.
Know How Much the Charity Sold Your Vehicle For
The amount of your deduction will likely be the amount the charity sold your car for. This means that if the charity sold your car for $2,500, your tax deduction will be limited to $2,500 regardless of if the market value is $4,000. There is an exception to this rule. If the charity sells the car to someone in need for a considerable discount or if they decide to keep it for personal use, you can claim the tax deduction for the full fair market value.
Determine the Market Value of Your Car
You can use a reliable used car price guide, such as Kelley Blue Book, to estimate your car’s fair market value. Search for prices for your car depending on its overall condition, year, make, and model. If your vehicle has excessive mileage, a dented body, or air conditioning that’s not working, it would be unrealistic to estimate the fair market value using the price of a vehicle in better condition.
Make the Donation
If you already have a specific charity in mind, find out if they can accept an auto donation. Search their website or give them a call to find out how their car donation process works. Some charities may offer to pick the car up from a mechanic shop or tow the car away. Others may allow you to take the car directly to the charity and give them the keys.
Claim the Deduction
To claim a deduction, the charity will need to provide you with documentation of the donated car. The documented information should include the following:
- Vehicle identification number
- Your name
- A statement that describes any services or goods you got in return for the car donation
- Date of the donation
Your donation will not be complete until you sign to transfer the car’s title to the charity. This way you may not be held responsible if the vehicle piles up parking tickets following the donation.
Find a Charity for Your Auto Donation
Look for a charitable organization that accepts the type of vehicle that you plan to donate. This could include trailers, cars, trucks, RVs, or boats. The donation process is often fast and easy. Many organizations offer free towing services as an added advantage. Choose an organization that is approved by the IRS to help you get the most out of your federal tax deduction.
