Car Donation Tax
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Car Donation Tax

You've probably seen those ads inviting you to donate your car to charity and receive a tax break. It's true that your car donation can get you a tax break, but it's more complicated than the ad makes it seem. Some people who donate their old cars may find their tax breaks are not as large as they expect. Other people may be able to increase their tax break by following the rules more closely.

In the past, figuring out your car donation tax break was quite simple. You simply determined the value of the vehicle being donated and claimed that on your tax return. In most cases you'd simply use a vehicle valuation service such as Kelly's Blue Book to determine the appropriate amount and go with that. Unfortunately in the past, some tax payers overclaimed their vehicles values in order to increase their car donation tax break. This has lead to the lawmakers tightening the rules and making it much more difficult to figure out exactly what you should claim for your car donation.

Car Donation Tax under $500

Fortunately, if you are donating a car to charity that has a value less than $500.00 the old rules still seem to appy. Simply claim the actual value of the vehicle as shown by a vehicle valuation service and claim that amount. As an example, if you donate an 1983 Dodge colt worth $300 according to Kelly's Blue Book, then you would simply claim a $300 car donation tax deduction.

Car Donation Tax over $500

If your donated car is valued at over $500 then there are quite a few more options as to how to determine the value that you can claim. These mostly depend on the use that the charity puts the car towards. If the charity sells the car then they should provide you with substantiation of the IRS-allowed donation amount within 30 days of when you turn your car over to the charity or, if the group sells the auto, within 30 days of the vehicle's sale. The amount that the charity sells the vehicle for is usually the amount that you can claim for a car donation tax credit. As an example, lets say you donate a car worth $800, which the charity then turns around and sells for $600. In this instance you would only be able to claim the amount that the charity received for the vehicle, the $600.00.

Car Donation Tax with intervening use

There are a number of exceptions to this valuation amount. If the charity uses the vehicle prior to selling it, then you may be able to claim the actual valuation of the car. You would need to receive documentation from the charity for how the vehicle was used for nonprofit works before the sale. As an example, consider you've sold your $800 car to a food bank, which in turn then uses it for picking up and delivery food for 3 months. They then sell the car for $600. Under the IRS regulations, this is classified as "significant intervening use" of the vehicle that allows the taxpayer to claim the higher $800 deduction.

Car Donation Tax with bargain basement sale

The other exception to the valuation rules is if the charity sells your car to a needy individual for a bargain basement price. Even if the charity gives your car away to someone in need, you can usually still claim the full car donation tax deduction. One thing to note with this exception is that you will need to be sure that the charity did give it to a needy individual.