Donating your car to a charity is very generous and may have a tax advantage; however, you need to understand the rules. You need to specify that the charity must use your vehicle in furtherance of its tax-exempt purpose. In doing so, you can deduct an amount equal to the vehicle’s fair market value (FMV), of course, subject to all the usual limits and restrictions on deductions for charitable donations.
If you do not make specific provisions and the charity sells the vehicle and collects the proceeds, your deduction is generally limited to the sale price collected by the charity (which may be much less than the FMV). The current rule states if the vehicle’s value exceeds $500 and the charitable organization sells it; your deduction is limited to the amount received in the sale.
If the charity materially improves the vehicle (e.g. repairs dents or installs new features) or significantly uses the vehicle and certifies the use, you can still deduct the FMV.
- The charity receiving the car must be an IRS-approved charitable organization that is qualified to receive deductible contributions.
- In the best-case scenario, the deduction is strictly limited to the vehicles FMV. This doesn’t necessarily mean the value listed in a used car buyer’s guide. The condition of the vehicle must be taken into consideration.
- The donation and the FMW must be properly documented. The recordkeeping requirements in this area depend on the value claimed and the total amount of your annual charitable donations
- Obtain a contemporaneous written acknowledgment for all charitable gifts of $250 or more.
- For property donations above $5,000 you’ll need an independent appraisal.