If you have a car sitting in your driveway that is getting no use at all, the most beneficial way to dispose of it is to donate it to a charity and take a tax deduction. That way, someone gets a car and you get an IRS kickback. But you can't just call a charity and tell them you are dropping off a car. Follow the proper steps to make sure that when tax season comes, you get the proper credit.
Start itemizing all of your deductions for the entire year. Your itemized deductions have to be greater than your standard deduction or donating the car makes no sense at all. Make sure you are aware of all the deductions you are entitled to claim and keep track of them. Have your records ready when tax season rolls around.
Calculate the best value for your car. The fair market value of your car is normally rather low while the highest value of your car won't fly with the IRS. Look for step-by-step instructions for calculating fair market value in used car buying guides like the online Kelley Blue Book, which factor in such things as your car's accessories, mileage and condition (see Resources below). Accessories and mileage are pretty solid calculations, but the condition of your car is a judgment call that you make on your own. Judge the condition with the best rating you can possibly give it.
Find a charity that qualifies. Tax-exempt or government entities are commonly the organizations that qualify. The IRS website lists most of the organizations that qualify to receive deductible contributions (see Resources below). If you have any questions about an organization not listed, call the IRS Tax Exempt/Government Entities Customer Service, a department of the IRS created to handle just these sort of questions. Make sure you know the correct name of the organization and where its headquarters is located.
Do the proper paperwork. Make sure that the receipt you receive from the organization has its name and address, the fair market value of the car and the date the contribution was made. Any contribution with a fair market value over $500 requires IRS Form 8283. Any fair market value over $5,000 requires a written appraisal.
Keep in touch with the organization to make sure you know how they plan to use your donation. If your car is sold, the amount you are allowed to deduct is based on the profit of the sale, and your deduction could be considerably less than the fair market value. But if your car is auctioned off and something crazy happens, your deduction could be considerably more.
- Some existing institutions streamline the entire process, including 1-800-Charity Cars (see Resources below). They will haul the car to the organization and give you the proper paperwork with the best possible value to deduct.
- The tax laws change yearly, so it's a good idea to check with the IRS to keep updated on car donation policies.
- Tax-exempt entities include religious organizations. So, you can claim your car donation as well as other contributions you make to your church, mosque or synagogue.
- If the car is sold to an impoverished family far below the fair market value for the purpose of yet another charitable act, you can claim the fair market value.
- Do not try to claim the highest value of the car when the IRS only asks for the fair market value. If audited, you could be assessed penalties greater than the amount you were able to deduct and you might get kicked back to a standard deduction, which is like getting a double penalty.
- Michael Allen