Car Donation Tax Rules

Car donations are classified as tax-deductible by the Internal Revenue Service. They are a sensible way to get tax write-offs, provided that the annually updated rules of the IRS are followed. The amount of the deduction depends on the fair market value of the car, the charity to which the donation is made, and individual circumstances. In addition to being a good way to save money, car donations are an eco-friendly way of disposing of old vehicles.

Features

Three types of charities accept car donations. One type accepts possession of the car and takes full responsibility for its resale; the Red Cross and the Volunteers of America are examples of this type of charity. Other charities donate the car, after refurbishing, to people who need a vehicle; an example is 1-800-Charity Cars. The third type of charity does not have the infrastructure to resell the cars and offers them at auctions for a flat rate.

Considerations

Following the rules of the IRS will help donors get the best tax deduction for their car. Car-donation deductions are available only for charities listed on Publication 78 of the IRS. Charities that are eligible for car deductions come under category 15(c) (3). The IRS website has all the details, or call an IRS representative at 800-829-1040 for answers to any questions about car donations. Publication 4303 on the IRS website is "A Donor's Guide to Vehicle Donation."

Misconceptions

There is a misconception that the owner can estimate the value of the car and that the tax deduction is based on this self-assessed value. A recent amendment of the IRS tax rules offers an automatic deduction up to a value of $500. The value of the car donation and all other donations cannot be more that 50 percent of the income of the individual.

Benefits

A car donation is a tax benefit. An added benefit is the satisfaction that the old car has been sold or given away to a good cause. Another benefit is that the donation prevents the need for the owner to haggle to resell the car on his own. The charity will typically pick up the car.

Insight from Experts

To get a tax deduction after donating a car it is important to get documentation from the charity. The charity must inform the donor about the resale value of the car; it should certify that the donor did not receive anything in return for the car, and that the donation was not monetary. The charity should sign Form 8283 so the donor can show proof of the donation.

References

• Tax benefits of donating old cars

Resources

• Car Donation Tax Deductions