Find out how to make a car donation and where your car may go once you donate it.
Taxpayers who itemize deductions on their personal tax returns can claim a tax deduction for car donations. Some limitations do apply. For example, the amount of the deduction cannot exceed more than 50 percent of the annual income of the person donating the car. Whether or not a tax deduction is desired or the donor is doing it for a cause, there are steps to take before donating the vehicle.
If donors want to gain a tax deduction from a car donation, then they must find an organization that is charity qualified. According to the IRS, any organization that holds tax-exempt status and an eligibility to receive tax-deductible contributions has a letter from the IRS recognizing them as a charity. Anyone can ask to see this letter to confirm the status of the organization before making a car donation.
Governments, mosques, synagogues and churches are not required to apply to the IRS for tax-exempt determination. Therefore, IRS Publication 78 may not include them. However, donations to these institutions are still tax deductible.
The donor can and should ask the charity plenty of questions about what they plan to do with the donation. Many charities welcome vehicle donations and there are charities that match the interests of nearly every donor. Some charities give the cars to people in need, some schools use the cars in programs to teach automobile-repair students and others will simply sell the vehicle and use the proceeds to fund their missions.
The maximum amount allowed as a tax deduction for a car donation is the fair market value of the vehicle. According to AllBusiness.com, fair market value is the price at which an asset or service passes from a seller to a buyer, who both have a reasonable knowledge of relevant information and are under no special circumstances to buy or sell, such as bankruptcy or emergency.
A used car guide is a good place to start to find the fair market value of a vehicle. However, the actual fair market value may be considerably less than the price listed in a used car guide and the IRS will only allow a deduction for the fair market value. It may be advantageous to consult the IRS Publication 561 for help in determining the fair market value of the car intended for donation.
If the fair market value of the donation exceeds $250, the donor should request a written acknowledgement from the charity and keep this acknowledgement in their records. The acknowledgement should include the charity's name, a description of the vehicle and one of the following:
A statement that the charity did not provide any good or service in exchange for the donation
A description and estimate of the value of the donation, provided by the charity
A statement that the only goods or services provided by the charity in return for the donation consisted of intangible religious services, if this is applicable
Donors must obtain written acknowledgment before filing their income tax return for the year in which the donation occurred. This acknowledgment should stay with the records for the applicable year.
Other facts that the donor should include in their records related to the car donation are:
If the claimed deduction for the vehicle is over $500, then Section B on Form 8283 must accompany the tax return. This form must include the signature of an authorized official from the charity.
If the claimed deduction for the vehicle is over $5,000, then the donor must obtain a written appraisal of the car. This appraisal must be from a qualified appraiser. More information about the appraisal is also located in IRS Publication 561. The appraisal must take place during the 60 days prior to the contribution.
Requirements regarding the car title vary between states. Usually, the donor must transfer the car title to the charity, make a copy of the transfer of the title and notify the state motor vehicle administration. Some states make exceptions to this process. Therefore, to avoid any confusion, donors can contact their state's motor vehicle administration to verify the requirements applicable to that state.
To avoid liability problems, the donor can remove the vehicles license plates before completing the donation unless state law prohibits this practice.