Overview
If you have an old car in your backyard that you no longer plan to use, you may think of putting it to better use. One option is to donate it to a charity, but you must learn more about the tax benefits that come with this contribution. You can reduce your taxes by donating that old car of yours, even though it may not be up and running. But in order to avoid any trouble with the Internal Revenue Service (IRS), you need to follow certain guidelines to ensure that donating your car is a pleasant experience.
Before you begin the process for the donation of your car to a charity, you need to find out which charities are eligible for this kind of donation. While calling around different charities, you must ask to see the "Letter of Determination" from the IRS as this is the permission that allows the charity to accept donations. If they do not have this letter, you cannot proceed with your donation.
One fact many car donators seem to misunderstand is that they think they can deduct the retail value of their car from their taxes. But then the truth is different. When you donate a car, it is already worth less than what you paid for it. It is a simple case of depreciation of goods. But you can certainly deduct the amount the charity ends up selling the car for. So, if your car started out as being $18,000, but the charity sells it for $3,000, then you are eligible to deduct $3,000 from your taxes.
You will need to get the proper documentation of the sale from the charity to substantiate your claim for tax deduction to the IRS during your tax filing. This way, there is no denying that the car was donated and then sold for a charitable cause. You will require this information and the corresponding receipts from the charitable organization on file in case you need them for an audit with the IRS. The charitable organization should provide you with this necessary information within 30 days of the sale.
If your car is worth $500 or more, you will need to file the newest tax deduction form and include the documentation from the charity. In case your car is valued at $5,000 or more, you will need to get an appraisal from an independent organization and place that figure on the tax deduction form. You may also use the Kelly Blue Book to find out the appropriate value for your car.
To further document your donation, make sure to take a number of pictures of the car, both inside as well as outside, and make copies of all the receipts related to the servicing you had done to the car.
Donating your car might not end up garnering you a large deduction on your tax filing, as some charities will simply sell off cars for as little as possible or have a dealership do the work for them. But irrespective of the sale amount, if you donate a car, make sure you get a deduction for it.
Resources
It is really a commendable action to donate your car for charitable purposes. You can get more information on how you can be adequately compensated for the act. Following are some online resources that can guide you both on how to go about the process:
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