How to Get the Biggest Tax Deduction From a Car Donation

You're about to get a new automobile and instead of trading in your old one, you're thinking about other ways to dispose of it. Giving it to a charity is a terrific idea, and it will do wonders for the people it serves. But be wary of the implications such largess will have on your federal tax return. Because taxpayers had been abusing the system for years, the IRS is now looking hard at so-called non-cash contributions and even changed the rules about how much you can deduct. That's not to say that giving your car to charity is no longer a good thing to do. Just be sure you know how to get the biggest tax deduction from a car donation.

Difficulty: Moderately Challenging

Instructions

1. Understand that the Internal Revenue Service revised the law in 2004 regarding how much you can deduct on your tax return. Until then, it was up to the taxpayer to decide how much his contribution was worth; and too often, the figure that was supplied exceeded to car's value. Now, the charity must certify the selling price of the car, or the maximum amount of the deduction is $500.

2. Be sure that the charity you choose is qualified to take your tax-deductible contribution. Ask the charity to provide you with a “letter of determination” from the IRS. Also, obtain a signed receipt from the charity when you give it the keys.

3. Keep good records of your donation, including the vehicle number, since the IRS is looking carefully at this type of donation.

4. If your donation exceeds $500, limit your deduction to the amount the automobile brought at auction. The charity must certify to you in writing the amount of the sale price, and it must do this within 30 days of the sale. If the charity does not intend to sell the car, it must provide you a receipt for the automobile and certify the planned upgrades of the car.

5. Get an independent appraisal for autos worth over $5,000. If it is worth less than that, consult Kelley Blue Book (KBB.com) to determine its value. Be honest as to its mileage and condition because the IRS will check them for accuracy.

6. To be safe, before you make the donation, photograph both the interior and exterior of the automobile. Also, if you have made recent improvements to the car, save the receipts for things like tires and other major repairs.

Tips & Warnings

• Some charities are not in the automobile donation business, and they only receive a flat fee, like $50, for your donation. If this is an important consideration in choosing a worthwhile charity, pay heed.

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