Car Donation Tax Advantages
- Donating a car to a charity is an excellent way to get rid of a car that might need several hundred dollars worth of repairs while also contributing to a good cause. In addition to not having to worry about selling the car, the Internal Revenue Service (IRS) also gives an incentive to donate your vehicle to charity through the form of a tax deduction. Prior to 2005, both of these donations led to a tax deduction equivalent to a car's full-market value, now certain laws have changed the amount eligible for deduction. Individuals now must choose to either donate their vehicles to either a standard charity or a non-profit organization that uses the vehicle as part of its stated cause.
- Most standard charities have 501(c)(3) tax-exempt status with the IRS. These charities simply auction the car and donate the proceeds to the affiliated cause. With tax-exempt status, this means that if the charity sells the car and the vehicle is valued at more than $500, the IRS limits the donor's deduction to the car's actual selling price or $500, whichever is lowest.
- If the non-profit organization uses the car for the purposes of its business, then the donor can deduct the car's value at the full-market value. For this reason, in order to get the maximum tax deduction, high-value car owners should research how the car donation is used.
An example of this is the nonprofit organization 1-800-Charity Cars. This non-governmental organization (NGO) repairs donated cars and allows the economically disadvantaged use of it in order to help the needy and welfare dependent become self-sufficient, tax-paying families. - These deductions are helpful for when individuals are claiming their gross income on federal tax returns. Individuals between tax brackets can move into a lower one by donating. By moving into a lower tax bracket, the individual pays less taxes for that year or receives a greater refund. To see whether you qualify, consult a tax professional.
- The donor determines the fair market value; however, you should note that the fair market value is substantially different from the Kelly Blue Book value. "Edmunds' TMV Used Vehicle Appraiser" provides a more accurate valuation report of what a used car may sell for in a certain neighborhood. This is useful at tax time and in the event of an audit and is available in the "Resources" section on this page.
- There is more to getting a tax deduction than just the individual's tax bracket. One example is that donors must itemize their taxes. Income, need for deductions, and the car's value are all additional factors. A certified accountant can help the donor decide if donating is in his or her best interest.