Would you like to know how to donate your car to help your favorite charity? It used to be that you could donate your car, assign a market value to the car and deduct away. Those days are gone. Today, donating a car to charity is more complex, but there are still ways to use your car to help a favorite charity.
In years past, you could deduct the fair market value of a used car from your taxable income. So if you donated a car worth $1,000 and you were in the 28% tax bracket, you'd get $280 off your tax bill. Today, the dollar amount that you can deduct from your income taxes depends largely on what the charity does when you donate a car.
Donate a used car for auction
Under the old rules, the majority of donated cars would be auctioned off, the auctioneer would give a portion of the proceeds to the charity and you would be able to write off the fair market value of the car, regardless of the actual selling price. This was a good deal for you and the auctioneer, but it cost the US Government millions in taxes and didn't benefit the charities if cars sold at low prices.
Today, the rules have changed in such a way that donating a car for auction is the worst possible choice, unless you have a car that's fairly new or in very high demand. If you donate a used car for auction, you'll only be able to deduct the actual selling price of the car, not the fair market value. If your $1,000 car sells for $100, you get a $100 deduction. If you're in the 28% tax bracket, that's a difference of $252. You'll be in the dark about your deduction until after the auction, and charities frequently turn down older cars or cars in poor condition that won't sell for much.
You'll receive a statement from the charity within 30 days telling you the selling price of your donated car. You'll need to include a copy of the statement from the charity with your tax return.
How to donate a used car and get larger deductions
Fortunately, there are still some situations where you can donate a used car to charity and get a full fair-market value deduction. Keep in mind that fair market value is not the same thing as Blue Book value. The IRS defines fair market value as the selling price for a car similar to yours with similar options, mileage and wear in your area. In other words, the fair market value of your car is probably much lower than the Blue Book value.
You get to determine the valuation of your car, but the IRS will challenge you if it looks too high. To get an accurate estimate, use the Edmunds True Value Pricing Calculator, then compare the results with prices you see in local classified ads.
Once you know the fair market value, you can compare your car donation options. You can deduct the fair market value if the charity keeps your car and uses it as part of their charitable work, rather than selling it. An example of this would be donating a van or truck to a food pantry that then uses the vehicle for pickups and deliveries. This is the best way to maximize the tax deduction if you donate a car that's fairly new and in good condition.
You can also choose to donate a car to a charity that provides cars directly to the disadvantaged. One example is 1-800-Charity-Cars, which cleans and repairs donated cars and then gives them to lower-income people for free. This is the best way to maximize the tax deduction for a roadworthy older car that isn't likely to sell for a good price at auction.
Should you donate a used car or sell it?
If you've got the time and the patience to deal with buyers, selling your car yourself and donating the proceeds to charity might be the best deal of all. You'll get a much higher selling price than if you donate a car for auction, and your charitable contribution will be subject to the rules of cash donations rather than car donations.
If you can sell your car for the Blue Book value, you can potentially get a bigger deduction than you would under fair market value rules. Selling your car doesn't need to be expensive. A simple For Sale sign or a free ad on Craigslist will often do the trick. Keep in mind that you'll need to disclose any problems with the car and factor repairs into the sale price. Generally, this is the best option if you have a car that's a few years old, runs well and has low to average mileage for its age.
Considerations when you donate a car
Make sure that you're dealing with a registered, 501(c)(3) charity, or you won't be able to take a deduction. IRS Publication 78, available in print or as a searchable database on the IRS site, is an annually updated list of eligible charities. Remember, too, that you'll need to file an itemized tax return and include sales receipts to claim the deductions.
If your car runs, even if it runs well, take it to a mechanic for an inspection. Be absolutely sure that everything is in working order, or you're likely to wind up with a lower auction sale than expected or a lawsuit from an unhappy buyer. If you're donating the car as is to a charity that will use it or donate it to a needy family, this is less of a concern.
Finally, check with your accountant or a tax professional to find out what you can deduct. Your eligibility depends on a number of factors, including your income and any other deductions, and each individual's situation is unique.
Before you donate a car to charity, you should realize that it is a little tougher than just dropping your car off at an organization. Here's how to make sure you get the tax break and the charity receives the most it can from a car. |
 | Research a charity before donating to make sure that the money you give will go to those in need instead of the charity's management. |
 | When you are searching for the best charities to give your money to, it's a good idea to check into the organization's background and history. That way, you can be confident that your donation is truly helping those in need. |
 | Starting a charity is one way to raise funds and support a cause you feel strongly about. You should follow several steps when starting a charitable organization, and proceeding in the right order and with the right knowledge is crucial. |
If you were rich, you could give to those in need without worrying about the cost. Most of us aren't, though, and some of us are barely scraping by. If that's where you are, don't stop giving to charity organizations. Instead, get creative. |
