0

Donate Car For Tax Deduction

Posted in Donate Car, Tax Deductions and tagged , by admin

Car Donation Deductions: What You Need to Know

Donating your car to a worthy charity is going to do more than help someone in need; it will also provide you a nice deduction come next tax season. Taxes can be a rather complicated process, especially when it comes to deductions. If you’re thinking about donating a car, and you want to know exactly what you can receive in terms of tax benefits, listed below are some things you should know:

The $500 Limit

To donate car for tax deduction purposes, a taxpayer must be aware of the $500 threshold that is placed on vehicles by the IRS. If the value of your car is worth more than $500, and you want to claim this amount, the process can become complicated. If the car claimed on your taxes is worth less than the $500 threshold, the IRS won’t require any additional documentation and won’t require itemization.

Now, if the value of the car is worth more than $500, here’s the likely scenario:

Let’s say that you donate a car to a local charity. The car that was donated was worth $1,500. Most charities are going to turn around and sell that car for a specified amount. When this car sells on the market, the charity will send you a sales receipt in the mail. Now, let’s say that the charity sold the car for $800. If this was the case, you’ll only be able to deduct the sales price of $800, and not the $1,500 you said it was worth. When you hand over a car to a charity, they are required to hand over a receipt within 30 days of the drop off. If they choose to sell the car, they must provide a sales receipt within that 30-day same time frame.

The Exceptions

Using the given scenario mentioned above, there are other exceptions to be aware of. For instance, let’s say that you donated that same $1,500 valued car to a local food bank. Instead of selling the car right away, the food bank decides to use it for six months to deliver food to local families in need. After that six months, the food bank decides to sell your car for $800. Instead of only claiming the $800 as a deduction, the IRS will allow you to claim the full value of the vehicle since this is deemed as “significant intervening use” of a vehicle.

Writing the Car Off

To successfully donate car for tax deduction, you’ll have to write them off at the end of the tax season. If your car was worth more than the $500 value, you’ll have to itemize your deduction rather than using the standard deduction. Using a Form 1040 and Schedule A, this is where you’ll list the value or sales price of the car.

Remember that when you donate car for tax deduction purposes, you’re not necessarily going to save that exact amount on your tax bill. Instead, this amount is meant to bring your taxable income down. Because of this, you’ll find that you’ll owe less taxes come tax time. For instance, using that $800 car write-off example, a taxpayer could see a tax cut of around $150 in the 25 percent tax range.

Leave a Reply