How Much Will My Tax Deduction Be if I Donate My Car?
Often one of the first questions a person has when deciding what to do with a car they no longer want is tax deduction be if I donate car to charity?” When you donate car to charity the amount you can claim on your itemized federal tax return depends on two things; the fair market value of your car and what the charity does with the car.
The fair market value of your car is the amount you could sell it for on the day you donate your car and is based on the condition the your car. To determine the fair market value or FMV of your car you can use any of the popular pricing guides to help, including the Kelly Blue Book, NADA Guide or Edmund’s Guide. If you are using the Kelly Blue Book or Edmunds Guide, you should start with the private party values and then adjust those values according to the mileage and condition of your car. Do not use the values listed under Retail or Clean Retail to determine the FMV of your car. These are the values for the car if it were purchased from a car dealer and in excellent condition. It is important that you are reasonable in determining which values to use based on the actual condition of your car. Here are some general guidelines you can use to help determine the correct selection for the condition of your car;
Excellent Condition or Clean Retail means that the car has never had any body work and has no rust. This is basically “show room” condition. If your car had some body damage at one time, even if that damage was completely repaired, you can not use this category.
Good Condition or Clean Trade-in means the car has some very minor blemishes, little or no rust, no major mechanical problems, good tires, etc. If your car has a dent, is rusted or has a significant problem like the transmission slips, the engine knocks, etc. you can not use this category.
Fair Condition or Average Trade-in means that the car is in reasonable running condition has some repairable mechanical problems, damage or rust. Most car donations fall into this category.
Poor Condition or Rough Trade-in means that the car has severe mechanical problems, severe damage or severe rust. If your car has a salvage title or flood title you must use this category.
The second thing that determines the amount you can claim for your tax deduction when you donate car is what the charity does with your car donation. If the charity sells your car as-is, without making any significant improvements, your tax deduction depends on the amount they sell it for. If it is sold for more than $500, the sale price is the amount you can deduct. In this case, the charity is required to provide you with IRS Form 1098-c. If your car is sold for less than $500, you can claim the FMV up to $500.
If the charity sells the car after making significant improvements you can claim the FMV as long as it doesn’t exceed the amount you paid for the car. In this case the charity has to provide you with a statement that they plan to make those improvements, what those improvements are and that the car will not be sold until after those improvements are completed.
If the charity plans on keeping your car and using it for their purposes, you can claim the FMV as long as it doesn’t exceed the amount you paid for the car. In this case, they have provide you with a statement of their intent to use the car, how long they intent to use it and certifying that the car won’t be sold until the completion of that use.
If the charity intents to donate car to or a needy person or sell it to them for much less that its FMV, you can claim the FMV as long as it doesn’t exceed the amount you paid for the car. In this case the charity must provide you with a statement of their intentions and that the gift or sale directly furthers its mission.
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