Tax Deduction for Donating a Car

How Your Old Car Can Lower Your Tax Bill

That vehicle sitting in your driveway collecting dust could actually put money back in your pocket. When you donate a car to a qualifying charity, the IRS allows you to claim a deduction on your federal taxes. At Newgate School, we help donors in the Minneapolis area turn unwanted vehicles into tax savings while supporting tuition-free automotive training for young adults in our community. 

Your tax deduction for donating a car depends on what the charity does with the vehicle and whether it sells for above or below $500. You must donate to an IRS-recognized 501(c)(3) nonprofit and itemize your deductions to claim any benefit. Charities must provide Form 1098-C within 30 days of the sale, which you'll need when filing your return.

 

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What Determines Your Deduction Amount?

Back in 2005, the IRS changed the rules, and the biggest factor now is how the charity uses your donated vehicle. Selling it at auction typically limits your deduction to whatever price it fetches. So if your 2015 sedan sells for $2,900, that's your deduction amount, regardless of what Kelley Blue Book says it's worth.

There are exceptions where you can claim fair market value instead. If the charity actually puts the car to work, like delivering meals or transporting people they serve, you're in the clear. Same goes if they make material improvements before selling, such as major mechanical repairs. And if they give the car directly to someone in need at a below-market price, you can claim fair market value too.

At Newgate School, our students repair and refurbish donated vehicles as part of their hands-on training. We either sell these cars to fund our programs or give them to single working mothers through Wheels for Women. Because we use donations for training and community support, many of our donors qualify for fair market value deductions.

The $500 Threshold Makes a Difference

When the charity sells your car for less than $500, you can claim the fair market value up to $500. That means even a beater that fetches $300 at auction could qualify for a full $500 deduction if you can document that's what similar vehicles sell for privately.

Once the sale price goes above $500, you're locked into claiming the actual sale amount. We send you Form 1098-C documenting the sale price, and that number is what you'll report to the IRS.

Paperwork You'll Need to Keep

Documentation makes or breaks a car donation deduction. You'll need a written acknowledgment from the charity that includes their name, a description of your vehicle, and a statement about whether they provided you anything in exchange for the donation.

For donations where your deduction exceeds $500, complete Section A of Form 8283 and attach it to your return along with Form 1098-C. If you're claiming fair market value on a vehicle worth over $5,000, an independent appraisal becomes necessary.

A tax deduction for donating a car only works if you itemize deductions on Schedule A. Taking the standard deduction, which most taxpayers do, means you won't see any tax benefit from your vehicle donation. Run the numbers with your tax preparer before assuming you'll save money.

Why Donors Choose Newgate School

Not every organization that accepts car donations qualifies for tax-deductible contributions. As a registered 501(c)(3) nonprofit, Newgate School meets all IRS requirements for deductible donations. We handle title transfers on-site and send you the required Form 1098-C within 30 days.

When you donate to Newgate, your vehicle goes directly into our training programs. Our students learn real-world automotive skills by working on your car, and 100% of the proceeds from vehicle sales fund our tuition-free education for underserved young adults in the Twin Cities.