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Home / Tax Credits & Deductions / Tax Deduction & Tax Benefit for Donating a Car to Charity

Tax Deduction & Tax Benefit for Donating a Car to Charity

June 5, 2012 By Manny Davis

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When going over your finances in any given year, it is not only important to assess your income, but it is also vital to see which types of tax deductions you qualify for. Donating a car can equate to a significant tax donation depending on how much your car is worth, as well as the amount of money the charity sells it for. Keep in mind that this is not a get-rich-quick scheme, and the deduction is meant to provide as an incentive for car owners to make good use out of their clunkers while still gaining something in return. It is also important to shop around between charities to ensure that you give your car to a reputable organization.

Deduction Amounts

There is a misconception that you can deduct the current market value of your car when you donate it to charity. In reality, the exact deduction you are entitled to for that tax year is the exact amount that the charity sells the car for. The organization submits proof of the sale to you within 30 days of the transaction.

Before giving your car to a charitable organization for the sake of getting a tax break, you should consider how much the vehicle can realistically be sold for. This can help you determine whether it is in your best interest to donate your car. If your car can reasonably sell on the market for $2,000, but the charity sells it for $1,000, then you might be better off selling it outright.

Charity Uses

On the flip side, you may be entitled to a larger deduction if the charity uses the donated vehicle before selling it. This is due to the fact that the car depreciates in value after it is used longer. In such cases, you could be entitled to the market value of the car, as long as you receive written documentation from the organization.

Also, in order to legally qualify for this type of deduction, you must sign a form that acknowledges that you didn’t gain anything in return for the donation. For example, if you receive other items that the charity sells in exchange for the car, you can’t qualify for the particular tax deduction.

Finding a Charity

Before you drop off your old car at a local charity, it is important to check out the qualifications of the charities in your area. Although just about any charity may accept vehicle donations, only a select few have the proper paperwork and connections with the IRS to give you legitimate documentation. This ultimately affects the ease of the deductions process when it comes time to file for that particular year. Generally, a charity that is labeled as a 501(c)(3) organization is legitimate.

It is also important to choose a charity with a solid track-record for keeping tabs on the way the vehicles are sold after they are donated. This is especially the case if your car ends up being used for other charitable purposes before it is sold off. Improper documentation can ultimately cause you to lose out on your tax deduction, even if the initial donation itself is legit.

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