Donating cars can be beneficial to both taxpayers and local charities alike. Car donations allow many car owners to take a tax deduction on their income tax return while helping to fulfill the needs of charities. Donating vehicles in many cases also saves owners the time and hassle involved with selling or trading in vehicles. However, there are specific requirements that must be met in order to qualify to deduct the value of cars and other vehicles on a tax return.
Car Donation
Although there is an abundant demand of people and organizations that wish to receive vehicles, donations must be made to qualified charitable organizations in order to receive a tax deduction. Examples of qualified charitable organizations include but are not limited to:
- Churches, synagogues, temples, mosques, and other religious organizations
- Federal, state, and local governments
- Nonprofit schools and hospitals
- Salvation Army, Red Cross, CARE, Goodwill Industries, United Way, Boy Scouts, Girl Scouts, Boys and Girls Clubs of America, etc.
- War veteran’s groups
Note that donations are usually only valid when made to organizations based in the United States; however, certain Canadian and Mexican charities qualify if the organization has an income tax treaty with the United States.
Donated Car Value
Vehicles donated to a qualified charitable organization may enable a taxpayer to claim a deduction on their income tax return. Generally, the amount of the deduction is based on the smaller of:
- The amount received from the sale of the vehicle by the qualified organization, or
- The vehicle’s fair market value on the date of the contribution.
There are certain exceptions if the value of the car increases due to significant improvements done by the qualified organization or if the vehicle is given or sold to a needy individual well below the fair market price.
Car Donation Tax Deduction
Similar to other charitable deductions, a taxpayer must elect to itemized deductions on Schedule A of their return rather than use the standard deduction option if they wish to benefit from the car donation. For deductions greater than $500, a taxpayer must attach Form 1098-C to their return in order for the IRS to allow the benefit. Form 1098-C is provided by the qualified organization within 30 days of the sale of the vehicle or within 30 days after the contribution of the vehicle. If the qualified organization sells the vehicle for $500 or less, a taxpayer must attached a written statement from the qualified organization acknowledging the donation.
Resources:
Internal Revenue Service Publication 526
The information contained within this article is for general guidance only. As such, it should not be used as a substitute for consulting with professional accounting, tax, legal or other competent advisors.
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