Donating your car to charity can result in significant tax savings if you include it in your charitable contribution deduction. However, doing a little planning will ensure that you maximize the tax savings of your donation.
Donating your car to charity can result in significant tax savings if you include it in your charitable contribution deduction. The Internal Revenue Service (IRS) requires you to calculate your tax deduction in one of two ways, depending on how the charity uses your donation.
- Deductions for cars the charity sells are limited to the sales price.
- In all other cases, you can use the car’s fair market value.
Here are 4 simple steps and tips to help you understand and claim a tax deduction for your donated car on your tax return.
Step 1: Find out how much the charity sold the car for
Use the price the charity obtains for selling your car as the amount of your deduction. For example, if the charity sells the car at auction for $3,000, your deduction is limited to $3,000, even if the fair market value is $4,500.
However, if the charity sells the car at a significant discount to a needy individual, or keeps the car for its own internal use, then you can claim a deduction for its fair market value.
If the charity sells your car sells for $500 or less, you can deduct $500 or your car’s fair market value, whichever is less. For example, if your car is valued at $650 but sells for $350, you can deduct $500.
Most charities will report the sales price of your car to you on Form 1098-C
Step 2: Determine the car’s fair market value
To estimate your car’s fair market value to calculate your deduction, the IRS suggests that you use a reputable used-car price guide. Consider consulting Kelley Blue Book, a recent copy or online, for example. Search the private party prices for your vehicle based on its make, model and overall condition.
Step 3: Claiming the deduction
In order to claim a deduction for your donated car, you must have documentation of your donation. At a minimum, the documentation you receive from the charity must include:
- Your name
- The vehicle identification number
- The date of your donation
- A statement describing any goods and services you received
Report the amount of your deduction on Schedule A. Since you can only claim a deduction for your car donation if you itemize, the total of all your eligible expenses on Schedule A must exceed the standard deduction amount for your filing status.
Step 4: Additional forms you’ll need
Complete Form 8283 if your car donation deduction is more than $500.
- If your deduction is between $501 and $5,000, you must complete Section A.
- If your deduction is greater than $5,000, you must complete Section B.
- If you complete Section B, you must also obtain a written appraisal as documentation.
Remember, with TurboTax, we’ll ask you simple questions about your life and help you fill out all the right tax forms. With TurboTax you can be confident your taxes are done right, from simple to complex tax returns, no matter what your situation.