How To Donate A Car To Charity And Get A Tax Deduction
Many people have seen advertisements encouraging them to donate their car to a charity in order to get a tax break. In fact, there may be some local charities in your area putting out a specific request for donated cars. In either case, it’s important to note that there’s more than meets the eye when it comes to simply handing your car over to a charitable organization and cashing in come tax time. There are certain steps that you need to take in order to guarantee a tax deduction for this type of donation. Fortunately, you can get the best tax deduction by following these simple steps.
1. Find A Reputable Charity
It won’t do you any good (tax wise) to donate a vehicle to a charity that hasn’t been officially recognized as a nonprofit. Just like with any other donation, your car must go to a nonprofit organization that has been granted 501(c)3 status by the U.S. government. Also, make sure your intended charity isn’t a political campaign, a lobbying organization, a civil league or a foreign government as items donated to these organizations are considered non-deductible contributions. You can find this information by searching for the organization on the IRS website directory. This is a critical step that any car owner must take if they are thinking about donating their car and want to receive a tax break for it.
In addition, you may want to consider doing a little background research on the charity itself outside of its nonprofit designation. Make sure the nonprofit is contributing to a good cause and that they have ethical and financially sound business practices. An easy way to do this is to search for the organization on GuideStar.org, which provides official ratings for nonprofit organizations.
2. Look Into The Charity’s Plans For Your Donated Car
You might think that once you find a legitimate nonprofit organization you’re good to go. However, you’ll need to get in touch with someone at the nonprofit before making a final decision about whether to donate a car there. The issue here is what happens to your vehicle after you donate it. If the charity is using it for services or giving it away, then you’re fine. However, if the organization sells your vehicle to raise money, you’ll only be able to receive a deduction that’s equal to the amount that the charity sold it for. For example, your car might be worth $1,000 when you donate it, but if the charity sells it for $400, you’ll only be able to claim a tax deduction amount of $400 instead of $1,000. Find a charity that plans to use or give away your vehicle, then get something in writing from them to confirm that those are their plans.
3. Have Your Vehicle Appraised
This step is a must if you want to get a tax break for the entire value of your car. One mistake that people often make when donating a vehicle is overestimating their donated car’s worth. Even if it is done by accident, overestimating the value of your donation can lead to an audit by the IRS. Get the value of your car in writing when you have it appraised since it’s always best to create a legitimate paper trail in case the IRS should ever launch an investigation. (For more information on how to avoid an IRS audit, see 5 Tips To Avoid An IRS Tax Audit.)
4. Get It In Writing
With a donation of this size, you absolutely must have documentation to prove that you donated your car to the charity of your choice. Get a tax receipt from the charity to confirm your donation (this is required by the IRS for all donations valued at $250 or more). They may not have one available right away, but they are obligated to provide you with one within 30 days of your donation. If they do end up selling the vehicle, they need to notify you of the vehicle’s sale price within 30 days as well. A copy of the receipt from the charity will need to be sent in with your tax forms.
5. Itemize It
In order to get the tax break for your donation, you’ll have to fill out a Schedule A form to itemize your deductions. This is where the documentation you’ve been collecting will come in handy. Your appraisal will tell you how much to claim for your donation, and the receipt from the nonprofit organization will be attached to prove that the donation took place. In addition to a Schedule A form, also plan to fill out a Form 1098-C, which is customized for the donation of motor vehicles, boats and airplanes.
Keep in mind that you might not always want to claim a deduction for a donated vehicle. If the sum of your itemized expenses is below your standard deduction amount, it might not be worth it to claim your donated vehicle for a tax break. If you have questions about whether or not you should donate your vehicle for tax purposes, contact a tax professional. (To learn more about the two types of deductions, see Standard Or Itemized Deductions: Which Should You Take?)