Donating a Vehicle to Charity
Instead of selling your old car, you may want to consider donating your vehicle to charity. Many charities can use a car for their services or sell it to earn a valuable donation to their programs. If you do donate your car to charity, it is important to make sure that you are following the IRS rules for vehicle donation to take advantage of the tax write offs available. The IRS has strict rules for maintaining the records of the value of the car donated, and paperwork that must be kept for proof.
Picture to the left: Rey’s FD RX-7.
How to Donate Your Car
When donating a car to charity, it is important to document your donation carefully. Since 2005, tax law changes have dramatically limited deduction amounts for some donated vehicles. The precise tax break depends on the donor’s claimed value of the gift and how the charity uses the vehicle.
If the car value is under $500, based on credible fair market analysis, it is much easier to donate. If the value is above $500, then the rules are much more stringent.
If you donate a car to a charity, and the charity sells the car to raise funds, the car value is determined by the sale value. The charity must give you substantiation of the IRS-allowed donation amount within 30 days of when you turn your car over to the charity or, if the group sells the auto, within 30 days of the vehicle’s sale.
You must send in a copy of the receipts from the donation and the sale with your tax return as substantiation of the car’s value.
Exceptions to the Valuation Limit
If you donate your car to a charity, which uses the car for several months to deliver donations to the needy, then sells the car later, you can claim the original fair market value of the car, as long as the charity gave you documentation when you donated the car and after the sale. You also need documentation on how the car was used in the interim.
The charity needs to be using the car for its charitable works for this rule to apply. It can drive people to appointments, deliver food and medicine or other similar tasks. If the charity makes a major repair to the car, you may also claim that in the car’s fair market value.
Another exception is if the charity immediately sells the car for significantly under the fair market value. You may still be able to claim the fair market value of the car under the law. This rule may also apply if the charity donates the car to a needy person. However, make sure that the charity did indeed donate the car to a needy person, otherwise the exception is not valid.
Follow the Donation Laws
All the regular donation laws still apply when you donate a car.
- You must claim the donation in the tax year you donated the car.
- The car must be donated to a legally charitable organization. Just because they will accept your car, doesn’t mean that they are a charitable organization. You can ask for proof of their IRS status.
- You must itemize your tax return in order to take advantage of car donation.
- You must meet the threshold for standard deductions for that tax year.
If You are Thinking of Donating Your Car
If you want to donate your car, do your research on the charity that you are donating it to. A charity will be able to tell you how the car will help them so that you can determine if you are making the right choice.
If you are not sure about any of the tax laws, talk to a tax accountant or call the IRS to get a current version of the donation laws. Below are links to the IRS website.
IRS Car Donation Links
- IRS Officials Urge Care for Those Making a Car Donation; New Law Changes Rules at End of the Year
The Internal Revenue Service issued a consumer alert today to help taxpayers avoid potential pitfalls when they donate their automobiles to charities.
- IRS Reminds Taxpayers About Requirement of Written Acknowledgment for Donated Cars
Internal Revenue Service officials today reminded taxpayers that they must obtain a charitys written acknowledgment of their vehicle donation before they claim a deduction for the donation.