How Do Tax Deductions for Donating A Car Actually Work?

Maybe you have an old vehicle sitting around. It takes up space in your driveway. Perhaps it needs some work, or it’s just not the preferred transportation method anymore. Either way, you’ve decided that it’s time to get rid of this eyesore on your property.

You could try to sell it, but that involves tons of work: prepping it for sale, listing it for sale, meeting with prospective buyers, turning down lowball offers, and more. You decide that maybe you could get a tax deduction for donating a car to a local charity. The only problem is that you don’t exactly know how it works.

Charities Make It Easy

Most charities or non-profit organizations that accept car donations make it easy. Some might even pick up your car at no cost to you, while others can legally transfer your title on site.

There are a variety of ways charities use donated cars. Some may drive the vehicle, while others might sell it or auction it off. There are even some programs where the old cars are used to teach students how to work on cars before the vehicle is sold.

One of the benefits of your gift is that there is often a tax donation for donating a car that you can enjoy.

Stay Safe When Donating Your Vehicle

Typically, there is little risk to you when donating your car to charity. That doesn’t mean there aren’t scams out there or other ways to take advantage of the kind-hearted.

Here are a few tips to ensure your donation is handled correctly:
• Stay away from organizations that claim you can deduct any amount on your taxes.
• Make sure to get a receipt from the charity.
• Always remove your license plate from the vehicle before handing it over.
• File a transfer form that transfers your title to the charity to your state’s title agency.

Follow the Rules

While charities may be knowledgeable on how a tax deduction for donating a car works, the IRS is king. There are certain rules and criteria that must be met to properly deduct a car donation on your taxes.

In some cases, those who claim the standard deduction may not benefit financially from donating their cars. These deductions are best suited for individuals who itemize their taxes.

You also need to donate your car to a qualifying organization. The charity or group that receives your donation must be a registered 501© organization or tax-exempt religious group. Make sure to check the charity’s eligibility by visiting the IRS’s website.

Once you drop off your car, don’t leave without obtaining a written receipt. You may also get other forms or pieces of paperwork depending on what the charity does with your car. Keep all documents in a safe place as you’ll need them come tax time. If the vehicle is worth more than $5,000, you’ll also need a written appraisal from at least 60 days before your donation.

Find The Right Tax Form

To get the appropriate tax deduction for donating a car, you’ll need to fill out the right tax document. In most cases, charities sell donated cars for money. The final selling price is the amount you can deduct from your taxes. The organization should send you a 1098-C.

Here are some common scenarios and tax forms you may need based on your car’s value:

$500 or less: there may not be any special forms required for your taxes, but keep all records in a safe place in case there is an audit down the road.

$501 to $5,000: file the 1098-C form you receive. You’ll also need to file Section A from Form 8283.

$5,000 or more: File your 1098-C along with form 8283 and the written appraisal of the vehicle.

A Thank You

Whether you’re after a tax deduction for donating a car or you just want to feel warm and fuzzy from helping out a non-profit group, vehicle donations is an amazing way to give back to your community. Even run-down, junkier vehicles can be donated. Do your research to ensure your donation goes to the right place. Not only will you clean up some space on your property, but you’ll also help make a difference while potentially saving some money on your taxes.