How to estimate the value of your donated car for Tax deduction?

You want to donate your car for a good cause and also need to avail the Tax deduction. Great!  But do you know how much worth your car is? Estimating your car’s worth is a crucial step to find out about how much Tax deduction you will receive for your donating car.

According to IRS, the most important step in a Tax deduction for the car you are donating is to ensure that the charity you are donating is an IRS tax-exempt organization. Only the donations made to such non-profit organizations allow you to claim for the Tax deductions. Mostly charities related to religious groups, or non-profit organizations working for education or humanitarian causes are exempted from Tax. Unless you don’t care about your Taxes, always make sure that you are donating to a qualified charity only. You also need to find out about the cars charity is accepting. For example, some charity may only accept a car, whereas others may also consider a boat, RV, or even truck.
The second step would be to estimate the total value of the car. You can go to local car dealers or check a used-car guide such as the Kelley Blue Book. You can also find the estimated value by doing online research. The factors such as make, model, year, or any accidental damage to your vehicle contribute to its final market price. For example, if the body of the car is damaged or air-conditioning doesn’t work properly or don’t have tires in good conditions, it is unreasonable to consider it 10/10 condition.



IRS also recommends you to find out how the organization is going to use your donated car. If it is going to sell the car, the Tax deduction is limited to the final sale price, even if it is below the fair market price. However, if it sells for $500 or less, you can claim a deduction for $500. If the charity decided to keep the car for its own operational usage, they can ask for the written appraisal before claiming a Tax deduction.

As per IRS rules, if the organization sells the car, it is bind to inform you within the 30 days of sale. No matter what a charity does to your donated car; sells or keeps it, the organization must provide you with a written acknowledgment to establish the proof that you have donated your car. At a minimum, the document must contain your name, the vehicle identification number, the date of donation, and a statement that confirms that what you received in the return. If you do receive something of value from the charity in the return of your donation, your Tax deduction will be reduced by its value as well.

Technically, your car donation is not complete until you transfer your ownership to the charity. For this, you have to mention the charity’s name in the form. This also ensures that you won’t be held liable if the car gets into some trouble later on. To complete the transfer you will need documentation from the charity.

How to simplify the car donation process for Tax deduction?

If you have never donated a car to a charity before, it must be an intimidating process for you. Especially, if you want to donate your car for the Tax benefits, everything has to be perfect in the documentation. Many people prefer to do everything their own. That’s okay if they want to do it their way but getting help from someone who already knows the process isn’t a bad idea too.

There was a huge misconception about the car donation centers when it comes to money. People believe that the center is going to eat up all the profit and charity won’t get much from their donation. This is not necessarily true. All car donation centers are not the same. There are some reliable car donation centers as well and there are good reasons charities trust these. Some of the reasons are listed below:

The charity has to deal with lots of paperwork and requirements as well while accepting car donations. It is required to obtain a car dealer’s license so that the charity doesn’t have to title the car in their name. This will save the organization from paying any title or sales tax fees on the donation. In the U.S every state has its own set of requirements for handling a vehicle; how and what must be done with the license plates. A donation center is well-aware of every small detail for each state.

If you fail to handle the title or license plates properly, it can create problems for the donor. Making the process of donating cars as easy as possible is the first priority of any charity organization. To deal with ins and outs of these documentations a certain level of expertise is required. Hiring experts for each donation can be troublesome as well as expensive which many charities certainly don’t want. Others simply prefer to use most of the income they have to the good cause they are working for instead of hiring experts for the donation process.

There is an additional cost attached to getting a dealer’s license. Plus, you may require insurance depending on which state you are working in. Some states even want you to fill-in a bond for a whopping $25,000 or even more. This is a huge cost attached just to handle vehicles.

The biggest reason charities opt to use the services of car donation services is to get the best sale price for the donated car. Due to the number of cars, the charity can’t handle it as a car donation center can. They are fully aware of the fair market value of the cars depending on the year, make, model, or their condition and can get you the best price no matter where the car ends up.

The better price you get from the car, more benefit the charity and the donor get. The amount of Tax deduction is limited to the final sale price of the car as per IRS rules. The objective is to maximize the benefits for charity organization and donor here.

Car donation centers also provide the donor with all necessary forms and paperwork so they can claim their Tax deduction with ease. Car donation centers don’t cost you anything. They will charge the charity they are working with which is most of the time percentage of the sale price, minus towing and auction fee.

 

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