Donating your car to charity can result in significant tax
savings if you include it in your charitable contribution deduction. However,
doing a little planning will ensure that you maximize the tax savings of your
donation. The Internal Revenue Service (IRS) requires you to calculate your
deduction in one of two ways, depending on how the charity uses your
donation. Deductions for cars the charity
sells are limited to the sales price. In all other cases, you can use the car's
fair market value.
Step 1: Find out how much the charity sold the car for
Use the price the charity obtains for your car in a sale as the
amount of your deduction. For example, if the charity sells the car at auction
for $3,000, your deduction is limited to $3,000, even if the fair market value
is $4,500. However, if the charity sells the car at a discount to a needy
individual or keeps the car for its own
internal use, then you can claim a deduction for its fair market value.
Step 2: Determine the car's fair market value
The IRS suggests that you use a reputable used-car price guide
to calculate your deduction when using fair market value. For example, go to
your local library and obtain a recent copy of the Kelley Blue Book. Search the
private party prices for your vehicle based on its make, model and overall
condition. This type of search can be done on the Internet as well.
Step 3: Claiming the deduction
Report the amount of your deduction on line 17 of Schedule A.
Since you can only claim a deduction for your car donation if you itemize, the
total of all your eligible expenses on Schedule A must exceed the standard
deduction amount for your filing status.
If you use TurboTax to prepare your taxes, we’ll help you
determine which filing status will get you the biggest tax savings.
Step 4: Additional forms you'll need
Complete Form 8283 if your car donation deduction is more than
$500. If your deduction is between $501 and $5,000, you must complete Section
A. If your deduction is greater than $5,000, you must complete Section B. If
you complete Section B, you must also obtain a written appraisal as
documentation.
Again, if you use TurboTax, we’ll ask simple questions and fill
in all the right forms for you.
Tips
- If the charity sells your
car sells for $500 or less, you can deduct $500 or your car’s fair market
value, whichever is less. For example, if your car is valued at $650 but
sells for $350, you can deduct $500.
- Most charities will report
the sales price of your car to you on Form 1098-C.
Warnings
You must have
documentation of your donation. At a minimum, the documentation you receive
from the charity must include your name, the vehicle identification number, the
date of your donation and a statement describing the goods and services you
received, if any.
