Tax Deductions & Car Donations
Taking a tax deduction for your car donation to charity isn't very different from any other gift to charity. Accurate paperwork is key when listing all gifts at tax season. However, car donations are a little more complicated than most charitable gifts because the value of the car determines the specific form that must be filed with the IRS—and the value of the car is not always obvious.
Filing a Car Donation Tax Deduction
When you file your annual U.S. Individual Income Tax Return (Form 1040), you will need to itemize your deductions for your charitable gift deduction(s) to be counted. The charity will provide you with an acknowledgement that describes the gift. That acknowledgement must be filed with your Form 1040. Additional steps may be necessary based on the value of your car.
- If you donated a car worth less than $250, simply keep a record of the gift in your files.
- If you donated a car worth $250 to $500, keep a record of the gift in your files and get an acknowledgement of the gift from the non-profit.
- If you donated a car worth more than $500 but NOT more than $5,000, you will also need to file a Noncash Charitable Contributions Form 8283 and complete Section A.
- If you donated a car worth more than $5,000, you will need to file a Noncash Charitable Contributions Form 8283 and complete Section B. A written appraisal of your car from a qualified appraiser is also required.
A complete description of the IRS requirements is available in their handy guide.
Requirements for Your Records
Your records should include the following:
- The name and address of the charity.
- The date of the donation.
- The place where you donated the car.
- A description of the car.
Determining Value of Donated Cars
How much you can deduct for your vehicle depends on how the charity treats your vehicle once you've donated it—i.e. whether they sell it for gross proceeds, or they use it for some other purpose, in which case you would use its fair market value.
The charity will be required to tell you whether or not your deduction should be based on gross proceeds or fair market value. The rules are also nicely detailed in the IRS guide.
When you donate your car to charity and the charity sells your car—which is what happens in most cases—the value of your car donation is the gross proceeds the charity received when they sold your car. This amount will be listed in the acknowledgement the charity gives you and will become the amount of your deduction.
Fair Market Value
There are exceptions to the gross proceeds rule; these include:
- The charity plans to use the car.
- The charity is going to make significant improvements to the vehicle.
- The charity plans to sell or give the vehicle to someone in need for a value less than the fair market value.
In the case of an exception, you can deduct the fair market value of your car—the price at which you could sell your car to a private party (not a dealership).
To calculate the fair market value of your car, start with its book value. Services like Kelly Blue Book offer online calculators that help assess the book value of your car. This is a good place to get a general understanding of how much your car is worth.
Once you have a good estimate for the book value, then you can determine the fair market value. Did the calculator take everything into consideration? For instance, are there expensive repairs needed that decrease the value of your car? If so, you must deduct that from the book value to approach the fair market value.
NOTE: If the statement from the charity indicates that the car was sold for $500 or less, you can deduct the lesser amount of either:
- The fair market value.
Car Donation Examples
To help clarify the donation and deduction process, here are a few examples of some general scenarios that could happen when someone donates their vehicle to a charity.
Sally donated a car to her local animal rescue organization. She looked up the book value of her car online, and it was worth $1,800 in a sale to a private party. Her car was in pretty good shape, but needed $500 of bodywork completed. Therefore, the fair market value of her car was $1,300.
Sally kept a record of her research on the value of her car, the information about the non-profit, and her gift to them. She received a letter from the charity acknowledging her gift worth $1,300 and informing her that they planned to use her car for a year to pick up and deliver abandoned or sick animals. The charity also acknowledged that they wouldn't sell the car for at least a year.
When Sally filed her taxes the following spring, she itemized her deductions, including her $1,300 car gift. She also filed Form 8283 with Section A completed, along with the acknowledgement from the charity.
Gina donated her car to a local shelter that assists the homeless. Gina's car was worth $7,000, but the charity sold it for a gross proceed of $5,500—therefore, Gina's deduction cannot be more than $5,500. She also filed Form 8283 with Section B completed, along with the acknowledgement from the charity.