Car Donation Tax Credit

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

Tax Credits with Car Donations

Donating a car is a fantastic way to save a few dollars with taxes at the end of the season. Let’s not forget that it’s also a great way to help those truly in need. With taxes though, there are a lot of things to know before donating a car to a local charity. To help determine a car donation tax credit, here are a few important things to know:

Qualification Rules

In order to qualify for a car donation tax credit, an individual must provide detailed information in regards to the donation amount. The amount of the car value cannot exceed 50 percent of the individual’s adjusted gross income at the end of the year, and the charity must also be a qualified charity, known as a 501(c)(3) organization. If all of this criteria is met, a successful deduction can be made. If the charity isn’t registered, the IRS will often deny this sort of deduction, so it’s very important that an individual researches a charity before making a decision.

Claiming a Tax Credit

A tax credit for a car donation is wildly going to vary depending upon the final value of the car. If the value of the car is less than $500, the taxpayer can include this deduction in their standardized deductions at the end of the year. If the value is less than $500, the deduction can’t exceed that amount. If the value of the car exceeds $500, the taxpayer will have to itemize their deductions on their Schedule A via the Form 1040.

Listed below is how you can determine your value if it exceeds the $500 threshold:

Determining a Value

Most charities will often sell their cars immediately after receiving it. The IRS requires that all charities send a sale receipt to the person that donated the car within 30 days. If the car isn’t going to be sold, a fair market value will have to be determined. Again, this fair market value receipt will also have to be sent out within the 30-day time frame. During this time frame, the charity will send a 1098-C form claiming the finalized value.

In terms of value, the charity will always have the final say-so in terms of the car value. If someone donated a car that was worth $2,000, but the charity decided to sell it for $1,200, the final deduction couldn’t exceed that $1,200 amount. There are some exceptions to this rule though. If the charity used the car for their own purposes for a designated amount of time, the car could be written off for the car value amount.

As long as the charity is registered, individuals can receive a car donation tax credit. Just remember that the deduction amount isn’t what a taxpayer will necessarily save at the end of the year, but rather a deduction from their income. Depending on the tax income bracket, the average individual can expect to save around $100 in taxes for every $400 the car is worth.