Instead of selling a used car to a dealership or a junk yard, some Americans choose to gift their automobile to a not-for-profit (NFP) organization. The National Kidney Foundation is a prominent example of this phenomenon, with more than 685,000 cars, trucks and boats donated to the organization since 1983. Often, these vehicles will be repaired and resold to provide revenue for charitable organizations. The Internal Revenue Service (IRS) has strict rules on automobile gifts and taking tax deductions.
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Requirements
Vehicle owners with a clear title to their vehicle, who wish to donate an automobile, may do so even if the vehicle does not run. Any car donation worth less than $250 will not require a written receipt from the charity to qualify for a tax deduction. For donations over a value of $250, the IRS requires taxpayers to receive a written acknowledgment from the NFP organization, which proves the item was donated and details the value of the donated item. The car donor has the sole responsibility of seeking a receipt for his deduction, but most organizations let donors know that donations may be written off on their taxes. Deductions of more than $500 allow the taxpayer to either deduct the fair market value of the car or the proceeds the NFP organization obtains from the sale of the vehicle.
Disclosure
Not-for-profit corporations are required to make a disclosure statement for any quid pro quo contributions. Quid pro quo applies if the car donor receives a gift from the NFP organization as a consequence of their donation. According to the IRS, quid pro quo donations with a value more than $75 require NFPs to notify the donor the amount that can be deducted from a donation is equal to the fair market value of the donation minus the value of the gift. Donors must also provide a good faith estimate of how much the car donation is worth, so the donor can deduct this amount on her taxes if she decides to do so.
Large Donations
To claim a tax deduction for car donations valued at more than $5,000, a qualified appraisal is needed to determine the fair market value of the donation. A not-for-profit organization may have a qualified appraiser on hand, or they may be able to help the donor obtain an appraisal at little to not cost. The main purpose of the guidelines outlined in IRS Notice 2006-96 ("Guidance Regarding Appraisal Requirements for Noncash Charitable Contributions") is to prevent taxpayers or organizations from overvaluing expensive donations to avoid tax.
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