How Is the Value of My Car Donation Determined?
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The First Steps
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Once you've made the decision to donate your car to a charity, you have to determine its value so that you can know how much that you can lawfully claim on your tax returns. At face value, this appears to be as simple as checking either the Kelley Blue Book or the NADA pricing guides. However, as the IRS Guide to Car Donations makes clear, the amount of your deduction is limited to fair market value, which is not always the same as Blue Book Value.
The Easy Way
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The best and most obvious way to determine fair market value is if the charity to which you donate sells the car and receives cash. Once the charity has sold your car, they will provide you with the amount for which the car sold. This is then the fair market value, and the IRS will penalize you if you misrepresent this amount on your deduction.
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Research
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What if the charity doesn't sell your car? Begin by consult a pricing guide (see Resources below) to establish a starting point. All pricing guides provide you with retail (car lot), private party (the price that you would pay to an individual) and wholesale (the price that a dealer would pay you for the car) pricing. As an example, use private party. This is the base price from which to begin, and from here, follow the guide's instructions to add and subtract factors such as options, mileage and overall condition. This is very close to fair market value, but double check this with the local market.
Settling on a Dollar Amount
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Consult your local paper as well as online to verify that sellers in your area are asking comparable prices. Charitywatch.org also suggests that you document with photos and receipts any special equipment or repairs that you have made to the vehicle that would enhance its value.
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