Have you thought about what you’re going to do with your old car? Rather than trade it in, you may gain more by giving it to charity. Not only could you gain a sizable write-off on your taxes but you’ll also be helping out a worthy cause that you care about.
Follow the steps we’ve provided below to quickly and easily help those in need by donating your old car or truck. Please be aware that the amount of your tax deduction may be limited to the price the charity sells the vehicle for and not the fair market value of your used car.
Donate A Car Directly To Charity
To get the most for tax benefit for your donation and get the full fair market value for your car, your best bet is to give it to a local charity that will use the vehicle for their operations or will give it directly to someone in need. If not, your deduction can’t be based on the vehicles fair market value and instead will be calculated off the amount of money the charity receives by having the vehicle auctioned or sold. Ask what percentage of the proceeds the charity receives when they sell a vehicle to get a better sense of your tax benefit.
You should also find out if the charity will accept your car donation directly or if you will have to involve a third party. If you chose a local charity, see if you can drive the vehicle to the charity instead of waiting for their pickup service. By doing so, the charity will be able to keep the full amount for selling the vehicle which will make your tax break bigger.
Make Sure The Charity Is Eligible
Be sure the charity is eligible to receive tax deductible contributions. Ask them for a copy of the IRS letter of determination verifying the tax exempt status of the charity and keep a copy for your records.
Be sure that you get a receipt from the charity for your car donation.
You should also be aware that non-cash donations are one of the most common reasons why an audit may be started by the IRS. Document the value of your car and keep a record of it in case you need to provide this information at a later date.
Car Value Above $500
You will need to complete Section A of IRS Form 8283 and include it with your tax return. You will need to file your tax return with a written acceptance letter from the charity. If the donated vehicle is sold and not used by the charity or given away, they will be required to provide you with certification that the vehicle was sold at “arms length” and between unrelated parties as well as the sale price within 30 days. In this case, the donor’s tax deductions will be limited to the total amount the charity sold the car for. If the charity does not sell the car, you should receive a receipt within 30 days of your contribution. In addition, the charity may also be required to provide certification detailing how it intends to use the vehicle you’ve donated with a promise not to sell or transfer it.
Car Value Above $5,000
For more expensive vehicles you will need to have an independent appraisal completed and you will need to fill out Section B of IRS Form 8283. If the car is less than $5,000, you can use the Kelley Blue Book, the Hearst Black Book, or a guide from the National Auto Dealers Association (NADA) to determine the market value. Be certain to get an accurate value assessment based on the date, mileage and condition of your vehicle. Trying to pad the value of the car you’re donating may not make the tax man very happy.
Take pictures of the car and save receipts for any improvements you made to the vehicle prior to donation.
It is your responsibility – not the charity – to properly value the car and you will be the one penalized if the IRS determines your valuation to be inaccurate.
For more information, please see IRS Publication 4303, A Donor’s Guide to Vehicle Donations or visit DonateCarUSA.com to learn more.
You can view available donated cars for auction or sale here.