Are you considering donating you car to the charity? Wow that’s a good step, but do you know that donating you car to the charity can bring about significant tax savings if you include it in your charitable contribution deduction, yes it is what it is. That’s not a cause for alarm though, with a little or no planning will make sure that you maximize the tax savings of your donation. You are expected to make good maths and sums of your deduction by the (IRS) Internal Revenue Service. In all other cases, you can use the car’s fair market value.
- Seek to know the amount the car was sold for by the charity.
- Use the price the charity obtains for your car in a sale as the amount of your deduction. For example, if the charity sells the car at auction for $3,000, your deduction is limited to $3,000, even if the fair market value is $4,500. However, if the charity sells the car at a significant discount to a needy individual or keeps the car for its own internal use, then you can claim a deduction for its fair market value.Determine the car’s fair market value
- The IRS suggests that you use a reputable used-car price guide to calculate your deduction when using fair market value. For example, go to your local library and obtain a recent copy of the Kelley Blue Book. Search the private party prices for your vehicle based on its make, model and overall condition. This type of search can be done on the Internet as well.Claiming the deduction
- Report the amount of your deduction on line 17 of Schedule A. Since you can only claim a deduction for your car donation if you itemize, the total of all your eligible expenses on Schedule A must exceed the standard deduction amount for your filing status.If you use TurboTax to prepare your taxes, we’ll help you determine which filing status will get you the biggest tax savings.Additional forms you’ll need
- Complete Form 8283 if your car donation deduction is more than $500. If your deduction is between $501 and $5,000, you must complete Section A. If your deduction is greater than $5,000, you must complete Section B. If you complete Section B, you must also obtain a written appraisal as documentation.
Again, if you use TurboTax, we’ll ask simple questions and fill in all the right forms for you.
If the charity sells your car sells for $500 or less, you can deduct $500 or your car’s fair market value, whichever is less. For example, if your car is valued at $650 but sells for $350, you can deduct $500.
Most charities will report the sales price of your car to you on Form 1098-C.
You must have documentation of your donation. At a minimum, the documentation you receive from the charity must include your name, the vehicle identification number, the date of your donation and a statement describing the goods and services you received, if any.