If you want to claim a car donation to reduce your federal income taxes, you must itemize deductions.
Here's the math: Suppose you're in the 28 percent tax bracket and the allowable deduction for the vehicle's donation is $1,000.
If the car donation is your only deduction, it's likely that taking a standard deduction would save you thousands more dollars in taxes. The only way that donating a car nets you any tax benefit is if you have many deductions and if their total, including the car, exceeds the standard deduction. And remember, you can always donate as much as you want to charities, but the IRS limits how much you can claim on your tax return.
Taxpayers who are considering donating a car to charity might be wondering how the tax bill passed into law in December 2017 could affect their decision.
With these and other changes resulting from the revised tax laws, it's more important than ever for consumers to consult with their financial adviser or tax preparer before making a decision about donating a car to charity. Only donations to qualified charities can provide a tax deduction for you. When a charity auctions your car for $500 or less, you can claim either the fair market value or $500, whichever is less.
When the charity gives or sells the vehicle to a needy individual at a price significantly below fair market value. Note the caution from IRS Publication 4303: "If you use a vehicle pricing guide to determine fair market value, be sure that the sales price listed is for a vehicle that is the same make, model and year, sold in the same condition, and with the same or substantially similar options or accessories as your vehicle."
In that case, your deduction is based on the car's selling price, not your estimate of its fair market value.
Getting tax benefits for a donated car requires a lot of documentation, whether the car is junked, sold at auction or given to a charity's client.
Besides giving your car directly to a charity, there is another way your vehicle can help a charity and also maximize your tax benefits: You can sell the car yourself and donate the proceeds.
If you're focused on getting rid of a junker with minimal effort and you'd look at the tax deduction as a nice bonus, then donating your car makes good sense. ( www.edmunds.com )
Car Donation Examples
To help clarify the donation and deduction process, here are a few examples of some general scenarios that could happen when someone donates their vehicle to a charity.
EXAMPLE 1
Sally donated a car to her local animal rescue organization. She looked up the book value of her car online, and it was worth $1,800 in a sale to a private party. Her car was in pretty good shape, but needed $500 of bodywork completed. Therefore, the fair market value of her car was $1,300.
Sally kept a record of her research on the value of her car, the information about the non-profit, and her gift to them. She received a letter from the charity acknowledging her gift worth $1,300 and informing her that they planned to use her car for a year to pick up and deliver abandoned or sick animals. The charity also acknowledged that they wouldn't sell the car for at least a year.
When Sally filed her taxes the following spring, she itemized her deductions, including her $1,300 car gift. She also filed Form 8283 with Section A completed, along with the acknowledgement from the charity.
EXAMPLE 2
Gina donated her car to a local shelter that assists the homeless. Gina's car was worth $7,000, but the charity sold it for a gross proceed of $5,500—therefore, Gina's deduction cannot be more than $5,500. She also filed Form 8283 with Section B completed, along with the acknowledgement from the charity. ( www.dmv.org )