Have an unused car you wish you could get rid of? Many people who own unwanted cars try to sell them due to financial reasons. But what if we told you that you can donate your car and save money by doing so? In many cases, you can claim a tax deduction on vehicle donations, allowing you to give generously without taking a serious financial hit.
Are you thinking about donating your car and want to take advantage of the tax break but aren’t sure how to go about that process? We’ll explain what you need to do to qualify for a deduction. We’ll also go over how much you can deduct and what documents you need in this ultimate guide to the IRS rules for vehicle donation.
If you want to receive a tax deduction on your donation, the charity you choose matters. To qualify for a deduction, your selected charity needs to be classified as a qualified organization. Not sure if your charity is qualified or not? Fortunately, the IRS has a handy tool—the EO Select Check tool—you can use to verify.
It’s important to note that most religious organizations, including churches, synagogues, and mosques, won’t show up in this tool as they aren’t required to apply to the IRS for qualification. Despite this, they still classify as qualified organizations, and you qualify for a deduction if you donate to them.
There are a few other things you need to do to qualify for a tax deduction. For one, you need to itemize your deduction on your taxes in Schedule A, Form 1040. You also need to make sure that your deduction doesn’t exceed 50 percent of your gross income. So, if you make $40,000 a year gross, the max deduction you’d be able to claim is $20,000. If you donate to a qualified organization, itemize your deduction properly, and ensure your deduction doesn’t exceed half of your gross income, you will most likely qualify for a tax deduction.
The next thing we’ll cover in this ultimate guide to the IRS rules for vehicle donation is the most pressing question on everyone’s minds: how much can you deduct?
This is where things get a bit tricky. The amount you can deduct depends on several factors, including the value of your car and what the charity does with it. Normally, charities will sell any vehicles you donate to them. After they sell your vehicle, they’ll send you a Form 1098-C that lists the final sale price. In these cases, your deduction is limited to the gross proceeds they make off your car. What does this mean? It means that, even if the fair market value of your car is $6,000, if the charity only sells it for $4,000, the max you can deduct is $4,000. That said, there are a few exceptions to this rule. For example:
In these cases, you can often deduct the full, fair market value of your car.
But how do you determine the fair market value (FMV) of your vehicle? The FMV is defined as the price a buyer would reasonably pay and a seller would accept for a car. Determining a car’s FMV isn’t an exact science, but it’s crucial you try to make your valuation as accurate as possible. It’s best to seek the advice of a professional appraiser here—and if your car is worth more than $5,000, this is necessary.
If evaluating your car’s FMV yourself, consult a trusted car price guide like Kelly Blue Book and compare the sales prices for similar cars online. Your valuation should be based on the sales prices of cars of the same make, model, year, and condition of your car, and it shouldn’t exceed the price of a private-party sale.
Naturally, getting a tax deduction requires a fair bit of paperwork! In Schedule A on your taxes, you need to provide documentation from the charity that lists:
Depending on the value of your car, you may need to file other paperwork. For cars worth less than $500, no extra paperwork is necessary. For cars worth more than $500 but less than $5,000, you need to fill out Form 8283 Section A and provide a written donation acknowledgment letter. Form 8283 Section B plus a written donation acknowledgment letter and professional appraisal of your vehicle are required for cars valued over $5,000.
Giving to charities you believe in is a powerful way to make positive change in your community and the world. But sometimes, the intricacies of donating can make people hesitant to do so. If planning and writing off a vehicle donation sounds too time-consuming, a quicker, easier, and more beneficial option is to sell your car to a junkyard and donate the cash you make from the sale.
Donating cash—and getting a tax deduction on it—is more straightforward than donating and deducting a physical object. And for charities, money is one of the most useful kinds of donations because they can use it freely to fund whatever they currently need.
If you want to sell your car for cash, junkyardnearme.com can help. Fill out the form on our main page, and we’ll provide an instant cash offer for your car. Our partners can pick up your vehicle as soon as same-day and hand you cash on scene. You can take this cash and give it to your favorite charity—or charities—to make this season of giving merrier.
