Charitable Donation of Car Tax Consequences
The Internal Revenue Service allows taxpayers to take a tax deduction for donating their vehicle to charity. Your donation must be made to a qualifying organization or you cannot claim a deduction. You can check to make sure the group qualifies by looking up the charity in the IRS' database. The tax consequences depend on the value of your deduction and your tax bracket.
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Valuing Your Donation
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The IRS has different methods for valuing your donation depending on how the charity uses your donated vehicle. If the charity uses your car for the purpose of the charity, such as driving special needs kids to different activities, you can deduct the fair market value of your car. However, if the charity sells your car to raise money, you can only deduct the amount the car sells for.
Effects on Your Taxes
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The amount your taxes will decrease depends on the tax bracket you fall in. Since you are claiming a deduction, it reduces the amount of taxable income you have for the year. To determine how much money your deduction will save you, you would multiply your tax bracket by the value of your tax deduction. For example, if you fall in the 28 percent tax bracket and your donation was worth $4,000, you would multiply 0.28 by 4,000 to find it would save you $1,120 on your taxes.
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Documentation
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You must receive documentation for your car donation in order to claim the deduction on your tax return. You must receive a receipt that shows your name, date of the donation, name of the receiving organization, the VIN for the car and what, if anything, the charity gave you in return. If the charity sold your car, the amount it was sold for must be included. If your donation is greater than $5,000, you must have the car appraised.
Tax Reporting
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When you file your taxes, you must use form 1040 so that you can itemize your deductions. Itemize deductions are listed on Schedule A and the total is reported on your form 1040. The amount of your car donation is included with other non-cash donations on Schedule A. If your car's value falls between $500 and $5,000, you must complete section A of form 8283. If the value exceeds $5,000, you must complete section B.
Warning
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The deduction for charitable contributions, which includes car donations, is an itemized deduction. You can only claim itemized deductions if you forgo the standard deduction. The value of the standard deduction is adjusted each year for inflation and varies based on your filing status. If the amount you can deduct for your charitable donation plus any other itemized deductions does not exceed your standard deduction, you are better off not claiming the deduction.
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