We all have stuff that we don’t need anymore. These old things can be useful for people in need. Donating for the good cause not only benefit the person at the receiving end but also bring happiness for the donor as well.
Donating your car is a great opportunity to make a difference in the life of those who are in a desperate need of a vehicle. Donating a car can also come with significant tax benefits. Having a little research about the process will ensure that you maximize the tax deduction on your donation. The IRS requires you to calculate your tax deduction depending on how the charity uses your donation.
The tax deduction is limited to your car’s sales price. Find out how much the charity got after selling your car. If the charity sells the car, your tax deduction is limited to the sale price even if the sale price is less than its fair market price. However, if the charity sells the car at a significant discount to someone in need or keeps the car for its own operational use, then you can claim a full tax deduction for its fair market price.
Many non-profit organizations sell these cars to licensed dealers at wholesale auctions. The money is used for the cause charity organization is working for. If the car isn’t in good condition, it is sent t salvage yards where all car parts, batteries, tires, etc. are removed and cars are crushed to recycle. The steel out of these cars is used to make steel-framed houses every year. The energy saved a year is enough to power almost 18 million homes. You can see, how one small act of kindness can make a huge difference for many.
IRS suggest you do some research about your car’s fair market price based on its make, model, and its internal condition. You can go to your local car dealers or can do online research to have a clear idea about the sales price of your car. The market fair price can of cars vary according to its make, model, year or any damage it has internally or externally.
When you deliver your car to the charity organization, it would require you to fill in a form. Report your car’s estimated amount of deduction on line 17 of Schedule A. Since you can only claim for a deduction for your car donation if you itemize, the total amount on Schedule A must be greater than the standard deduction amount for your filing status. You can ask about your filing status from your tax consultant.
Filling-in form 8283 for your tax deduction is very important if your car is worth more than $500. If your deduction is between $501 and $5000, you need to fill in the section A, otherwise, you must complete the required information in section B. You must also get a written appraisal to complete your documentation. At a minimum, the documents must mention the name of the charity, the car identification number, the date of your donation with your signature.
There are many charities who need to travel from one place to another to help people in times of need. It could be a natural disaster in far areas or a group of a volunteer may need to access the remote areas for humanitarian work. A charity organization that uses vehicles for transportation would get benefit directly from a car donation. However, in many cases, the charity organizations choose to sell out the car to a dealer or in an auction to raise funds for the cause. In the case of a dealer, the charity may not receive more than $45 per car depending on its condition.
According to IRS rules, the donor’s Tax deduction is limited to the actual sale price of the car at which the charity decide to sell the car. To maximize the Tax benefits from your car donation, it is very important that you donate your car to the charity that is going to use the vehicle in its operation or will give it to someone else in desperate need of a car. Otherwise, as per rules, the Tax deduction will be very less and may not benefit you as such. If the charity is going to sell the vehicle less than its fair market price, ask them how much the amount will go to charity and how much the organization will keep operating its organizational tasks.
It is always best to ask the charity to pick up the vehicle themselves or you drive the car to charity. Involving a third party isn’t a good idea as it will cost the charity a flat fee and this may reduce the benefits for the organization.
You can check the official website of IRS to find out the list of a qualified charitable organization or you can ask for a copy for the charity’s IRS letter of determination which will verify its Tax exempt status. The receipt you get in return of your donation is also very important for filling the Tax returns later.
The biggest problem could be the timing of the donation and when the car is being sold. Let’s say you donate your car by the end of the year, but charity doesn’t sell it until the summer, you will not be able to file for the Tax deduction unless you file for an extension. The longer it takes for a charity to sell your car, the longer you have to wait to file for the Tax benefits.
Documenting the price of the car is also important. If the car is worth more than $500, the donor needs to provide the complete information of Section A of IRS form 8232 and attach it to their tax return. If the car is worth $5000 or more, you will also require an independent appraisal while completing section B of IRS form 8232.
Take pictures of the car, and save receipts for any repair you have done to verify its fair market value. Remember it’s the donor who is obligated to value the car, not the charity. In case of any problem, the donor will have to pay the penalties and not the charity.
Decided to give your car to charity? See here for a list of some good charity programs. We advice you to read more about this before you end up donating your car.
To donate often gives a good and clean mental condition but one can as well be rewarded with tax deduction from such. There is no limit..
Can I claim a tax deduction on my car donation to most charity agencies? Yes. They accept almost all vehicles, including cars..
Like any other industry, the car-donation can be riddled with fraud and misleading information and you should proceed..