Weigh the Benefits of Charity Vehicle Donation?

Answer 1

Donating your used car to a charity appears to be a win-win situation: you get rid of an old car and gain a tax deduction, and the charity receives a valuable asset it can sell for cash. Before deciding on a charity vehicle donation, explore the tax rules and the advantages and disadvantages. Donating a vehicle without the proper preparation can hurt you at tax time.

Tax Rules

Prior to 2005, vehicle donors were able to deduct the full market value of the donated vehicle from their taxes. Because of reports of inflated values, the Internal Revenue Service revised the rules on charity vehicle donations. Currently, the amount of the deduction depends on the value of the vehicle and how the charity plans to use the car, according to the financial website BankRate.com.

If the charity decides to use your vehicle for its charity work, such as to transport clients for healthcare appointments, you can deduct the full value of the donation. If the charity sells the vehicle and the value is estimated at more than $500, the amount of your deduction depends on the actual price for which the charity sells the car. For example, you value your donation at $2,000, but the charity sells it for $1,500. You will be able to claim $1,500 on your taxes as a charitable donation. The IRS requires the charity to provide you with confirmation of the selling price within 30 days of the sale, and you must include the verification when you file your taxes.

If the charity sells the vehicle at a price far below fair market value, or if the charity gives it to a needy client, the IRS allows you to deduct the higher fair market value. You can only deduct an amount up to the fair market value of the donated vehicle. If your car was only worth $200, for example, that is the maximum amount you can deduct from your taxes.

Use Caution

Before making a charity vehicle donation, thoroughly research the intended charity, advises BankRate.com. The charity must be qualified as a tax-exempt organization as determined by the IRS. You must itemize your taxes to receive the charitable donation deduction. Weigh your options. You may receive a larger benefit by selling your old car yourself rather than donating it for the tax deduction.