How to Estimate the Tax-Deductible Value of a Donated Vehicle
Donating a used vehicle to a charity is a classic example of a "win-win" situation. The donation can be used by the charitable organization or sold to generate income, and the donor can claim a charitable deduction when filing income taxes for the year. Such charitable deductions reduce gross income, which in turn reduces income tax.The IRS requires donors to estimate the fair market value of vehicles to claim this deduction. With a little research and a calculator, estimating this value is quite simple.
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Instructions
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Research the vehicle's value. There are on-line services such as Kelley Blue Book and the National Automobile Dealers Association (NADA) that will provide estimates (see Resources). Such sites require basic information about the vehicle, such as model, make, year, mileage, options and accessories. Printed copies of the Kelley Blue Book and the NADA guides are also available in many public libraries.
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Calculate the average selling price of the vehicle. Most sources quote two prices, the price that a dealer will pay for the vehicle and the price that a dealer will charge for the vehicle. The best estimate of the base price is the average of those two numbers, so add them and divide by two. If the source quotes a private-party sale price, use that number.
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Obtain estimates for the cost of any repairs to the vehicle, if needed. Repairs need not make the vehicle perfect, but after repairs the vehicle must be roadworthy and capable of passing local safety tests. A good rule of thumb is to get estimates from three repair shops.
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Calculate the vehicle's fair market value, which is the average selling price minus the cost of repairs. Document both the calculation of estimated value and the estimated repair costs; keep these calculations with your other tax records.
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Claim the fair market value as a charitable deduction on IRS Form 1040 Schedule A when you file your federal income tax return.
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Tips & Warnings
The value of antique or rare vehicles should be established by an appraisal.
If the cost of repairs is prohibitive, you can still claim the salvage value of the vehicle. Ask the repair shops to estimate this value for you.
Be sure to keep all records in case you are audited by the IRS; you must be able to document the fair market value of the vehicle.
References
Resources
- Photo Credit truck 1 image by Chad Perry from Fotolia.com
