Donating your car usually qualifies for a tax deduction. There are several rules you need to know.
Vehicle Donations Are Itemized Deductions
Donating your car is an itemized deduction. Therefore, you can only claim tax benefits from donating a car if you itemize your deductions.
If you normally take the standard deduction, you are allowed to switch to taking itemized deductions in the year you donated your car. This will usually only make sense if the allowed deduction for your car plus any other potential itemized deductions you may have add up to more than the standard deduction.
For example, you usually take the standard deduction on your tax returns because your only possible itemized deduction is your $1,000 property tax bill. If you donate a car worth $3,000, your possible itemized deductions are $4,000 — since the standard deduction is more, it still makes more sense to claim the standard deduction.
If you donate a $10,000 car, then you’ll have more itemized deductions than the standard deduction and should itemize.
Is it fair to not get an extra deduction if you’re below the standard deduction amount but donated extra to charity this year? Maybe not, but that’s just the way the standard deduction works.
You Must Donate to a Qualifying Charity
In order to receive the car donation deduction, you must donate your car to a qualifying charity. This usually includes churches or other 501(c)(3) nonprofit organizations.
This is a very strict rule since the IRS doesn’t want people claiming fake deductions. For example, you can’t give your car to someone in need, even if they’re not related to you, and claim a deduction without going through a qualifying charity.
Most charities readily advertise that you qualify for a charitable tax deduction when you donate to them since that gets more people to donate to them. They’ll also usually include a link to a charity lookup so you can verify them if you have questions.
There Are Limits on Your Total Charitable Deductions
Your total charitable deductions for the year usually can’t exceed more than about half of your income. Unless you’re retired or have a lot of other donations, most people donating used cars won’t come near the limit.
Even if you do go over the limit, you can usually deduct the amount you went over by next year. You rarely lose your full deduction entirely.
Calculating Your Deduction for Your Car
There are two ways to calculate your deduction for donating your car depending on how the charity used your car.
The Charity Sold Your Car
If the charity sold your car as a fundraiser, you can usually take a deduction for the selling price. The reason for this is that donation deductions are usually for the fair market value of what you donated, and the best way to determine the fair market value is by the sales price in the market.
The charity will usually notify you of the sale price as part of the donation process. They’re also required to issue you a Form 1098-C by the start of tax season. This is an IRS form that shows what you donated to the charity.
You may also get an initial donation receipt showing that you donated your car. Keep this for your records to prove that you made a donation, but if the charity estimated a potential selling price, you have to wait and go by the actual selling price.
The Charity Used Your Car
If the charity uses your car and doesn’t sell it, you can usually take a deductible donation equal to the car’s fair market value.
Using your car includes:
- The charity keeps it in its name and uses it in its work.
- The charity makes material improvements to the car, such as major repairs, before selling it. This goes beyond painting, cleaning, and similar touchup work that’s common in car sales.
- The charity makes a bargain sale (substantially below market value) to a needy individual.
Most people use used car guides such as the Kelley Blue Book to prove their car’s value. The IRS allows this as long as the guide has the same year, make, and model for your area.
You’re typically allowed to use the private party sale value, which is usually the highest value. You do have to properly assess your car’s condition (i.e., you can’t say it’s excellent when it’s not) and may want to save photos or maintenance records supporting the condition you claimed.
If you donate a rare car or don’t believe the book values are accurate, you may want to get an appraisal from a qualified appraiser.
Filing Your Taxes
If you’re claiming a vehicle donation deduction greater than $500, you’ll need to include Form 8283 when you file your tax return. Form 8283 is for noncash charitable contributions.
Form 8283 is fairly simple and asks for basic information about your car and its condition. Keep a copy of this form, your donation tax receipt, and other information that supports your deduction in your tax records.