Tax Rules for Donating a Used Car to Charity

How to Donate a Car to Charity?

There are special tax rules that one can use to donate a used car to charity and receive a tax deduction.  For most taxpayers, there are many advantages to the car donation approach because it avoids the hassle of selling a used car on the open market. Donating a car can also result in a beneficial charitable contribution deduction. The car donation process is simple.

 

Tax Rules for Donating a Used Car to Charity

All you need to do is call the charity and someone will come and pick up your vehicle, or tell you where to bring it. However, with so many charities to choose from and so many people trying to scam the innocent, picking the right organization is not always easy.

 

Charitable Deductible Limitations

However, the amount of the charitable deduction you will be allowed to claim is subject to special IRS limitations. In many cases, the tax deduction you can claim on donating the used car is less than the car fair market value. Many times is may be better to take the dealer’s offer on the car.

For cars worth over $500, the deduction will be the amount for which the charity actually sells the car, if it sells the car without materially improving it. This limit applies to any motor vehicle designed for road use, including vans and trucks, as well as to boats and airplanes.

 

Charitable Deduction for Car Info

Since most charities actually sell the cars they receive, it’s likely that your donation will be limited to their actual sale price.  Taxpayers must then wait until the car is sold to find out the amount of the used car tax deduction that they can take. Often, the value will be low because the charity sells the car at auction.

A taxpayer can only get the fair market value of the car as a tax deduction at the time of donation if the charity uses the car in their services. In that case, fair market value is usually set according to the  blue book listings for used cars. The IRS will accept the value in the blue book  or another established used car pricing guide.

However, if the car is in poor condition, because it needs substantial repairs or is unsafe to drive, and the pricing guide only lists prices for cars in average or better condition, the guide will not be the final say on the car’s value. Instead, the IRS requires taxpayers to establish the car’s true market value by any reasonable method. Many used car guides show how to adjust value for items such as accessories or mileage.

Taxpayer’s must itemize deductions to get the tax benefit; you can’t take a deduction for a car donation if you take the standard deduction.

 

Information about getting the used card donation tax deduction:

  • Making sure the charity qualifies and is legitimate. You won’t be entitled to a charitable deduction unless you donate your car to an eligible charitable organization.
  • Proving your right to the deduction. If you donate your used car to charity, make sure you take the steps needed to substantiate your tax deduction.
  • If the charity sells the car, you will need a written acknowledgement from the charity containing your name and tax ID number, the vehicle ID number, a certification that it was sold at arm’s length to an unrelated party, the gross proceeds of sale, and statement that the deduction cannot exceed the proceeds. The charity should provide you with this acknowledgement within 30 days of the sale.
  • If, instead, the charity will use (or materially improve) the car, the acknowledgement needs to certify the intended use (or improvement) and the intended duration of the use, along with a statement that the car will not be sold before completion of the use or improvement. In this case, the acknowledgement should be provided within 30 days of the donation.

 

IRS Tax Forms for Car Deduction

If the car is worth more than $500, the donor must complete Section A of IRS Form 8283 and attach it to their tax return. Donors are required to file with his/her tax return a written acknowledgement from the charity. If the charity sells the car, the charity must provide the donor with a certification that the car was sold at “arms length” between unrelated parties and the sale price of the car within 30 days. In this case, the donor’s tax deductions will be limited to the total amount the charity sold the car for. If the charity does not sell the car, it must provide the donor with a receipt within 30 days of the contribution. The charity may also be required to provide certification to the donor stating how it plans to use or improve the car and stating that it promises not to sell or transfer the car.

 

Section B of IRS Form 8283

Penalties are imposed on charities that provide fraudulent acknowledgements to donors. If the car is worth $5,000 or more, an independent appraisal is necessary. The donor must also fill out Section B of IRS Form 8283. For cars worth less than $5,000, use the Kelley Blue Book, the Hearst Black Book, or a guide from the National Auto Dealers Association (NADA) to determine the market value. Make sure you use the correct figure for the date, mileage, and condition of your car. Picking the highest figure for your car model and year without taking into account other factors may not pass muster with the IRS.