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Car Donation Tax Law: Deductions, Benefits and Rules

By Power of Attorney on January 8, 2012 in Tax Law

What do you know about Car Donation Tax Deduction Rules and Car Donation Tax Law?

Donating a vehicle to a charitable organization is a very good idea, and has two major benefits.

First, your vehicle will be going to help someone who may not have his or her own transportation.

Second, donating a vehicle allows you to claim a write-off, or deduction on your tax forms.

Car Donation Tax deduction Car Donation Tax write off

Read our article about Car Donation Tax Law

This article will give you the information you need to donate a vehicle, how to claim the donation on a tax form, and also the traps and pitfalls to avoid (there are quite a few) so that you do not end up having to pay for your good deeds.

Where you donate is as important as what you donate

Donating your car or truck is a very noble act.

After all, there are many people out there who cannot afford new vehicles, and there are even organizations that are short on transportation.

However, you cannot simply donate your car to anyone you want and expect to be able to claim a deduction on your taxes.

Part of car donation tax law is that organizations that receive tax deductible gifts are registered on a cumulative yearly publication put out by the Internal Revenue Service (IRS) known as Publication 78.

Publication 78 lists most of the organizations that accept things like car donations, and it would be wise to check that list to find a place that can not only take your donated car, but also allow you to use the car donation as a tax deductible.

In addition to the organizations listed in Publication 78, places such as churches, Synagogues, mosques, and even government agencies which are tax exempt, but do not have to register for the major lists of charitable organizations also accept car donations that can be claimed as tax deductible items.

Your best bet is to research and contact any prospective place where you plan on donating your car.

How to Claim Your Car Donation Tax Deduction for 2012

If they are registered and can prove that your car donation makes you eligible for a deduction, then you might cross-check their standing on Publication 78, or even any of the numerous on-line resources that list viable organizations that accept donated cars.

It’s important how your car is used after it is donated

This point has caused a lot of confusion ever since the legislation was proposed in 2004, and passed the following year. Basically, the amount of money you can claim on your taxes for your car donation is dependent on how your car is used by the organization that receives it.

When you donate a car, and the value of that car is $500 or more, then the actual amount you can claim for tax deductions depends on how the organization intends to use your car.

If the organization takes your car and sells it – or puts it up for auction – you are entitled to claim a deduction equal to the value of the resale price.

However, if you donate your car to an organization that plans on using the vehicle for what is deemed “significant charitable work” – general transportation, delivering meals to the poor, and things of that nature – then you are fully entitled to claim what you feel is the fair market value for your car.

Considering that fair market value takes into account a number of factors about your car – make, model, year, mileage, condition, etc. – many sites have car donation and tax deduction calculators, so that you can get a good estimate on figuring out the amount of money you can claim for your car donation when your are figuring out your taxes.

Documentation

Just like you have to supply the form that states your yearly income and taxable credit with your tax forms, so do you have to provide the necessary documentation when you make a car donation.

Tax Law states that when you donate a vehicle to a charitable organization, you must receive not only a receipt showing the name of the organization, the type of car you donated, the price of the vehicle, its intended use, and other pertinent information – but you must also get a Form 1098-C from the organization which itemizes each part of the transaction – even detailing the amount your donated car was sold for, if the organization decides to sell it after you’ve made the donation.

All of this information will stand as proof when you make a tax deductible claim on your tax forms.

It is important and necessary that you can provide as much information as possible in order to receive the car donation tax benefits offered by the IRS.

Itemization is the key

Many people take great pains to carefully go through each step of donating a car, but end up not receiving the tax credit for their deductible act.

They research the organization, how the car is going to be used, and even the fair market value of the car, but they forget one very important step when it comes time to claim the deductible – the itemized deduction.

For most taxpayers, itemization does not really go beyond the standard deductions for a single or married household when filling out personal tax forms.

However, in order for you to get the benefits of your donated car, you must take the time to itemize your donation on your tax forms.

This means providing copies of the donation receipt, where it was donated, the intended use of the donation by the charitable organization, as well as the estimated fair market value of your car.

Itemizing goes beyond just listing your earned income and comparing it to the tax brackets.

If you have donated a car to a charitable organization – especially one listed in the Publication 78 document mentioned above, you must take time to fill out the long tax form and itemize every little thing.

Spending the few extra minutes with a pencil and a car donation tax calculator can make the difference between getting a minimum of $500 (I n most cases, the deductibles are worth more than that) as a tax write-off, and getting absolutely nothing because you neglected to itemize your donation.

Bottom Line

Donating a car to a charitable organization benefits that organization directly, and can even enrich the community for those who are in need of a vehicle.

For you, it means that the government will recognize your good deeds in the form of a tax deduction.

However, when you are looking to make a car donation, tax law requires that you research the organization, find out how your car is going to be used after it is donated, and figure out the fair market value of your vehicle.

Remember that not all organizations are recognized by the government, so your prospective donation may count for nothing unless the organization is either tax exempt, or listed in Publication 78.

It is also important that you document every step of the car donation for tax purposes, so that when you are itemizing the car donation as a deductible on your tax forms, that you can provide the necessary information to lawfully claim your car donation as a tax deduction.

Remember that documentation and itemization are the keys to being recognized for your good works, and it can mean the difference between a large sum of money in your pocket, and getting penalized for donating you vehicle without following the instructions to the letter.

P.S. You can find Car Donation Tax Deduction Calculator here - http://turbotax.intuit.com/tax-tools/calculators/taxcaster/

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