How to Put a Value on a Car Donation
It used to be that, according to federal tax law, you could deduct the fair market value of any car you donated to a charitable organization. However, the government changed the law in tax year 2005 because many people were abusing it, deducting too much money. Now, there are more hoops you have to jump through to determine the deduction you can take on your donated vehicle.
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Instructions
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Determine what the charity is going to do with the car. If the charity is going to simply resell it, the most you can get as a deduction is what they sell it for if it makes more than $500. Ask the organization to provide you with a receipt as soon as possible so you can provide it to the IRS. If instead, the charity is going to use your car as part of its mission, either by fixing it up, driving it or providing it to someone that needs a vehicle and can't afford one, proceed to Step 2.
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Figure out the fair market value of your car. Remember that this is not the same as the resell value. Two good places to look are at Kelley Blue Book or Edmunds' True Market Value calculator. When you use either set of forms, be brutally honest about the condition of your car. Since the charity will have a record of your car's whereabouts, it won't be hard for an auditor to tell if it is brand new or quite old.
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Make sure you're following IRS rules before you fill out that tax form. What happened in 2005 could happen again, and you want to make sure you're up to date on any procedures that could affect the value of your car donation.
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Go to the IRS Website. You'll find it in our Resources section. View the tax tip section. Then don't forget to include a record of your donation with your tax return if the law requires it. In 2008, you need to include Form 8283, but this may not be the case for future tax years.
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Tips & Warnings
If you're not sure exactly what value to put on your car, talk to your tax adviser or accountant. The organization you're donating to has to have 501 c(3) tax status for your contribution to be tax deductible. Political organizations are not eligible.
Always err on the side of caution when dealing with the IRS. Overestimating your donation could lead to some hefty fines if you get caught.
