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. The Internal Revenue
Service (IRS) requires you to calculate your 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.
Step 1:
Find out how much the charity sold the car for
Use the price the charity obtains for your car in a sale 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 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.
Step 2:
Determine the car's fair market value
The IRS suggests that you use a reputable used-car price
guide to calculate your deduction when using fair market value. For example, go
to your local library and obtain a recent copy of the Kelley Blue Book. Search
the private party prices for your vehicle based on its make, model and overall
condition. This type of search can be done on the Internet as well.
Step 3:
Claiming the deduction
Report the amount of your deduction on line 17 of 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.
If you use TurboTax to prepare your taxes, we’ll help you
determine which filing status will get you the biggest tax savings.
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.
Again, if you use TurboTax, we’ll ask simple questions and
fill in all the right forms for you.
Tips
- 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.
Warnings
- 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 and a
statement describing the goods and services you received, if any.
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