How does the tax deduction work when donating a car? Donate a car for a tax credit.
Hoarding that old clonker in your backyard or driveway could raise big bucks for your favorite charity and provide a nice tax write-off for you.
The skyrocketing demand for new and used cars has fueled demand for junk cars that can be auctioned for parts or recovered and reused. Charities that look for unwanted vehicles – regardless of condition – when the cars are sold.
Donors are potentially eligible for tax deductions on the cost of the vehicle.
Many charities make it easy for you to donate your car and pick it up if it’s no longer running. But if you hope to claim a deduction for your donation, you must follow IRS rules.
Claiming tax deduction for car donation
To take advantage of this deduction when you donate an old car to a charity, you must:
Itemize deductions.
You will need to itemize the COT deductions for your tax breaks for your contribution. If, however, you claim the standard deduction – which about 90% of taxpayers do – then donating your car at tax time won’t benefit you.
Submit valid documents.
The amount you write down and the documents you need will depend on what the car is worth and what the charity will do with it. The organization can use or sell it in its operations and retain the proceeds.
Regardless of how a charity uses the car, if you want to claim that the car is worth more than $500, you must get a written acknowledgment of the donation. This acknowledgment should contain:
Your name and Social Security number or taxpayer identification number
Car Vehicle Identification Number (VIN)
Date of contribution
Confirm that the charity has not provided any goods or services in exchange for donations – or estimate the value of any goods and services provided.
If the charity sells your car, your deduction is limited to the proceeds from the sale – which may be less than what you think the car is worth.
For example, you say you donate a car to a charity, with an estimated value of $3,000, but the charity sells the car for $2,000. In this case, your deductible is $2,000.
After the car is sold, the charity must send a 1098-C, “Contributions for Motor Vehicles, Boats and Aircraft,” within 30 days. The form should contain:
A statement confirming that the charity sold the car in an “arm’s length transaction between unrelated parties”. In other words, the charity did not sell it to an employee or any other related party.
The date the car was sold.
Gross income from sales
However, if a charity intends to use the car in its work, you can deduct the fair market value of the car on the date you donate it. In this case, a written acknowledgment from the charity must confirm that the organization intends to use the vehicle and specify the intended use.
When you file it, you’ll need to attach Form 1098-C or another written acknowledgment, and Form 8283, “Noncash Charitable Partnerships,” to your tax return. If you use any of today’s best online tax software, the program should automatically fill out the required form for you after answering questions about your donation.
How to donate your car to charity
Many well-known and well-known charities accept car donations, including Habitat for Humanity, Disabled American Veterans and the McSwish Foundation.
Local high schools and vocational schools may also accept donated vehicles for use in auto shop classes.
The easiest way to donate your car is to call the organization or fill out an online donation form. The charity will arrange to pick up the car or you will drop it off at a designated location. When you prepare your tax return, you will be given an invoice to use.
You should keep this receipt. To prove your donation, you’ll need to keep it with your records for at least three years.
