Is My Massachusetts Car Donation Tax Deductible?
It is not difficult to find a charity in Massachusetts willing to take a car off your hands. As long as you choose one that the IRS approves of, your good deed will not go unrewarded. This is because you can claim a deduction for the donation on your federal tax return, but only if you itemize the deduction.
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Gross Proceeds Limitation
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For most property you donate to charities during the year, your deduction will equal the property's fair market value. However, when you donate a car, the amount of your deduction cannot exceed the price the charity sells the car for. The charity has an obligation to notify you of the price it obtains, which is generally reported on IRS Form 1098-C. As long as the charity does not provide the buyer with a deep discount, make significant improvements to the car before the sale or retain it for its own use, then the price is the maximum deduction you can claim. If one of these situations applies, it may be necessary for you to assess the car's fair market value. This is because the IRS will allow you to claim a higher deduction based on value when one of these exceptions apply.
Collectible Cars
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Most cars depreciate in value over time, which rarely results in you claiming a deduction amount that is more than what you paid for the car. However, as of February 2011, if you donate a valuable collectible car to a charity, and it is worth more than $5,000 then you must adhere to some additional requirements. Although the charity will provide you with the same 1098-C and a written acknowledgment, you must also prepare Section B of IRS Form 8283 and obtain the signature of an officer of the charity. All these documents must then accompany your income tax return. It is in your best interest to hold on to these documents for at least three year in case you ever get audited by the IRS.
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Itemizing Deduction
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Be aware that donating your car will only reduce your taxable income when you itemize your deductions. If you claim the standard deduction, you cannot also claim a charitable contribution. In order to itemize, you must have sufficient expenses that in total, exceed the standard deduction amount. But even if you don't ordinarily itemize, your car donation this year can potentially qualify you to do so.
Massachusetts Income Tax
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Claiming a charitable deduction on your federal tax return will not save you any money on your Massachusetts income tax return. Effective as of the 2002 tax year, the Massachusetts state legislature repealed the law allowing you to claim a deduction for any type of charitable contribution, including the donation of your car.
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