If you’ve got a car that you don’t use but would like to get some money for, donating your car to a charity may be a wise choice. By donating your car you can deduct an amount from your taxes based on the price at which the car sold. Be careful though or there are a few traps that could catch you unaware. If you learn the guidelines set forth by the IRS you will be able to maximize the deduction you can claim from your car donation.
How will this factor into my taxes?
You can find more details about the IRS’s guidelines for donating vehicles by reading IRS Publication 4303. Here’s the gist of what you need to know. First of all find a charity that you would like to donate to and make sure that it is a section 501(c)(3) organization and is accepting car donations. Next figure out the value of your vehicle and keep the appropriate documentation on hand to prove it.
Figure out how much you can deduct
When itemizing your donation on your 1040 income tax form you should state your estimate for your car’s value for deduction. Keep in mind that if the charity is planning on selling your donated car then the amount you’ll actually be able to deduct will be determined by the gross proceeds received by the charity. They will provide you with a receipt which you must provide to the IRS along with a few other pieces of documentation specified in the IRS publication above.
If on the other hand the charity makes significant use of the car or sells it for a lower price to a needy person, you may deduct the fair market value of your car from your taxes. For deductions up to $500 you must provide basic information such as the name of the charity, the date of your donation, the location where you donated the car, and a description of your car.
If the value of the car you have donated is between $500 and $5,000, you will also need to fill out Form 8283, Section A. And if the value is greater than $5,000 you will need to fill out Form 8283, Section B instead and obtain a written appraisal from a qualified appraiser.
Documentation is your best friend
It’s highly recommended that you collect all the necessary documentation as asked for by the IRS. You could be prevented from deducting more than $500 for your $4,000 car if you don’t provide Form 8283, Section A. Do your research before donating to a charity. You don’t want to donate a car you’re expecting $500 for only for them to sell the car through a middleman for a fraction of the price. Ideally you would like to know that the charity will either use your car in its operations or provide it to someone needy so you can deduct the full fair market value!
Old cars can be a hassle to get rid of. But as long as you find the right charity to donate to, you can get some extra cash in your pocket and help a good cause!