Donating A Car To Charity

Donating A Car To Charity

Donating a used vehicle to charity is a terrific way to get a big write-off on your tax return. But before you hand over the keys, make sure the deal is handled properly. The IRS has begun to scrutinize these contributions closely.

The IRS is aware of advertisements that promise top write-offs for run-down vehicles. Recently, and IRS official sent an internal memo citing two programs with problems.

In one case, a for-profit company sets up a donation arrangement with little or no involvement from a charity. In the other program, deductions for “Blue Book” value are promised even when cars aren’t running.

Determining the Value of Your Car  

The maximum amount you can deduct on your income tax return is the fair market value of your car. Fair market value is the price a willing buyer would pay and a willing seller would accept for the car, when neither party is compelled to buy or sell, and both parties have reasonable knowledge of the relevant facts.

Some fundraisers have mistakenly claimed that donors can, in all cases, deduct the full value of their cars as found in a used car guide (such as “blue book” value). A used car guide may be a good starting point to value your car, but you should exercise caution. The IRS will only allow a deduction for the fair market value of the car, which may be substantially less than the “blue book” value.

Example: You donate your car to the local high school for use by students studying car repair. Your credit union representative told you that the “blue book” value of the car is $1,600. However, your car needs extensive repairs, and after some checking, you find that you could only sell your car for $750. Your charitable contribution deduction may not exceed $750, the fair market value of the car.

Qualifying for a Tax Deduction

You can deduct contributions to charity only if you itemize deductions on your Schedule A of Form 1040.

You must take into account certain limitations on chari­table contribution deductions. For example, your deduc­tion cannot exceed 50% of your adjusted gross income. Other limitations may apply. Publication 526, Charitable Contributions, provides detailed information on claiming deductions and the deduction limits. It also describes the types of organizations that are qualified to receive tax-deductible contributions.

Recordkeeping and Filing Requirements

Depending on the amount you are claiming as a charitable contribution deduction, you may need to get and keep certain records and file an additional form to substantiate your charitable contributions.

WRITTEN ACKNOWLEDGMENT FROM THE CHARITY – You must obtain a   written acknowledgment from the charity if the total deduction you are claiming for a donated car is $250 or more. The Text Box: acknowledgment must include the name of the charity, a description (but not value) of your car, and one of the following:

1. A statement that no goods or services were provided by the charity in return for the contribution, if that was the case
2. A description and good faith estimate of the value of goods or services, if any, that the charity provided in return for the contribution, or
3. A statement that goods or services that the charity provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.

You must get the written acknowledgment on or before the earlier of the date you file your return for the year you make the contribution, or the due date, including extensions, for filing the return. A charity can provide either a paper copy of the acknowledgment to the donor, or a charity can provide the acknowledgment electronically, such as via e-mail addressed to the donor. Do not attach the acknowledgment to your income tax return; instead, retain it with your records to substantiate your contribution.

Here’s how you can protect your valuable deductions:

1. Research what your car is worth. Don’t be fooled into believing you can write off the full value of your dilapidated vehicle that is listed in car guides or “blue books”. The IRS only allows a deduction for the fair market value or the price the car would sell for on the open market. To make a determination, start by finding the blue book value and adjust the figure based on mileage and condition. (The Kelley Blue Book Web site at www.kbb.com can help with the initial valuation).
2. Make sure the IRS approves the charity. You can only deduction contributions if they’re made to a qualified organization. Check IRS Publication 78 to see if a group is eligible. Keep in mind that when an unethical charity is audited, the IRS obtains the names of all the donors.
3. Gather proof of your car’s condition. Document the shape of your car was in before the donation by making written notes and taking photographs.
4. Complete the proper paperwork. To deduct a contribution of property worth more than $500, you must attach IRS Form 8283 to your tax return. If your car is worth more than $5,000, you’re required to obtain an appraisal from someone other than the charity receiving the car.

For more details, see IRS Publication 526, Charitable Contributions, and Publication 561, Determining the Value of Donated Property