Drivers who decide to unload their unused car taking up space in the driveway through donation, get an extra benefit of a car donation tax credit. This deduction can end up being worth far more than what the car is worth via private sale, trade-in, or from the junkyard.
Unfortunately, the process to claim your car donation tax deduction isn’t always clear. While some non-profit organizations can help you with the process, other charities leave it up to you to figure it out. When in doubt, talk to your professional tax preparer, but here is a basic explanation of how tax credit for car donations works.
How Are Car Donations Tax Deductible?
Anytime you donate something to a charity, you can potentially deduct the donation from your taxes. There are a couple of things to consider before entering your donation into your taxes.
First, the donation must go to a recognized non-profit organization. You’ll know it’s recognized because it is considered a 503©. This designation is only given to groups who are vetted and approved by the IRS. If the organization is not a non-profit entity, your donation is not tax-deductible.
The second thing to consider is that you’ll need a receipt. While you can often claim smaller donations without a receipt, you can put yourself at risk for an audit if you’re making claims that can’t be backed up with paperwork. Make sure you get all of the necessary documents when you make that car donation.
Finally, car donation tax deductions typically require that you itemize deductions on your taxes. Many filers go with the standard deduction. This option might actually be in your best interest, but it might also forfeit your ability to claim the credit.
Donate Your Car
How Much Is My Car Donation Tax Deduction Worth?
There are two ways in which the IRS values an automobile deduction. The first is based on the fair market value of the vehicle. Long gone are the days that you can simply make up a number for the value of your car to earn a nice credit. The IRS likes to see evidence that the value you’ve claimed is appropriate.
Finding the fair market value doesn’t necessarily have to be a chore. You can simply look at your local market and see what your car is worth. Sites like Kelly Blue Book, Cars.Com, and Edmunds are great resources to get rough estimates for the value of your car in its current condition. You can even get quotes from local auto dealers to see what someone would actually pay for the vehicle. Make sure you document everything. If your deduction kicks up any red flags, you’ll be able to justify the amount you used.
The second way the IRS determines the value of a vehicle donation is the sale price of that car. Many charities will use your donation as a way to fund their programs. This often means putting the car up for sale or auction. In some cases, the organization will repair and restore the vehicle before making it available for purchase.
The value you claim on your taxes is the amount the vehicle earns from the sale. You’ll have to make sure you get the paperwork from the non-profit group to ensure you can document the deduction appropriately.
Support Local Charities And Earn a Car Donation Tax Credit
Donating your car to a worthy organization is a great way to support that group’s mission. Many organizations rely heavily on donations and the proceeds of sales to continue their programs. At the same time, you’re helping a worthwhile charity; you can also earn a tax credit that will help come April.
If you’re still not sure how your specific tax deduction will work, talk with the charity that’s taking your old car. You can also meet with your tax professional to ensure everything is completed the right way.