If you donate a car to charity, the standard tax deduction is $500. To take a higher deduction, you have to know how much the charity gets from the vehicle sale. You’ll provide the details to the IRS on Form 823. If the charity plans to use the car, they should provide you with a receipt for tax purposes.
Let’s look at some more tips about donating a car to charity.
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Check Their Non-Profit Status
Not all charities are eligible to receive tax deductible donations. Be sure to ask about their 501(c) status, and get a paper verification if possible.
Don’t forget to make your tax claim for the tax year the car was donated. If the donation occurred after January 1st, you’ll have to wait until the next tax season to take the deduction.
Look For Charities That Use Donated Cars
If the charity sells your donated vehicle, your tax deduction is based on the sale price. However, if the organization uses the car or gives it to a person in need, the deduction is based on the market value. Charities that sell cars often do so at below market value.
Don’t Get It Towed
If you plan to donate, go the extra mile if you can. Drive the car to the organization to save on towing costs. This also gives you the chance to ask directly about securing the documentation you’ll need to back up a tax deduction.
For Cars Over $5,000
If the value of your donated car exceeds $5,000, you’ll have to get a third party appraisal. Make sure you take photos and record mileage at the time of donation. For cars valued at less than $5,000 you can use the Kelley Blue Book value.
Auctions Aren’t For Needy Persons
Let’s say the charity sells your car for $350. Can you still take the minimum $500 deduction? If the sale price was below market value, or if the car was given to a needy individual, you can still take the $500 deduction.
Remember, auction sales are not equivalent to needy individuals. The IRS picked up on several fraud cases where cars sold at auction were being claimed as donated to the needy.
Consider Selling It Yourself
You might actually do better selling the vehicle yourself. First of all, you’ll probably get a better price. In this case, you can make a cash donation to your favorite charity and even have some money left over for your troubles. Or better still, make a bigger donation.
Be Meticulous And Reasonable
Non-cash donations are carefully scrutinized by the IRS. This shouldn’t discourage you from making a donation. Just be sure to document everything carefully. Also, resist the temptation to overestimate the value of your donated vehicle.
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Published in CARCHEX Auto Finance Resources by CARCHEX on March 18, 2016