About Car Donation Taxes

While it is illegal to evade paying your income tax, there is no law against avoiding taxes. In fact, the federal government has created a long list of ways to avoid paying income taxes. Contrary to popular belief, many of these options are not just for the super rich. Charitable contributions are deductible from your income if you choose to itemize your deductions on Schedule A of Form 1040, and those donations don't have to be in cash. You can take a deduction when you donate your car to a qualified charitable organization.

Function

To encourage individual taxpayers to participate in improvements to their communities, the federal government allows federal income tax deductions for cash and real property contributions to qualified charities. The idea is that local, regional and national charities provide needed services to their constituents. If these charities were absent, the federal government would have to step in and fund these services. Allowing tax deductions for vehicle donations is an advantageous trade-off from the government's perspective.

Features

Not every donated vehicle is eligible for a tax deduction, and there are specific rules you must follow to obtain the maximum deduction for your vehicle donation. First, the charity must be qualified under Internal Revenue Service (IRS) regulations. Second, the amount of the deduction you can claim depends on how the charity treats the donation. If the charity sells the vehicle at auction, you can only claim the final sales price as your deduction. In certain other circumstances, such as if the organization uses the vehicle for its own transportation needs, you may claim the car's fair market value.

Considerations

Deductions for property donations exceeding $250 require written documentation from the charity. Deductions for more than $500 require either written acknowledgment from the charity or for you to attach Form 1098-C "Contributions of Motor Vehicles, Boats, and Airplanes" to your Form 1040. Deductions of more than $500 also require the inclusion of Form 8283 "Noncash Charitable Contributions." When deducting the fair market value of the car for a private party sale, the amount cannot exceed the price listed in a vehicle pricing guide, such as the Kelly Blue Book.

Benefits

Donating a car to a qualified charity that has 501(c)(3) tax-exempt status can have significant impact on both your bottom line and on your community. Assuming the charity will use the vehicle in a manner that allows you to claim the full market value as a deduction and that it can provide you with the proper documentation, you can reduce the amount of your taxable income by the amount of your donation. More importantly, a qualified community charity can now better serve its constituency, making your community a better place to live.

Warning

Not all charities, even ones considered worthy, are qualified according to the IRS. For you to take a tax deduction for donating your car, the charity must have 501(c)(3) tax-exempt status. Fair market value is not the same thing as suggested retail price. You can never claim more than fair market value of your car, even if the amount you could sell it for on the open market is far greater.

Resources

• IRS: A Donor's Guide to Vehicle Donations