If you are considering making the generous decision to donate your car to charity, you need to be aware of the IRS car donation rules when tax time comes around. Donating your vehicle to a charitable organization that accepts cars can supply a much needed transportation vehicle for the charity or it can be used to raise money for the organization by selling it. It can also be a wonderful way to get a deduction on your tax return. Many rules exist that you need to abide by and take into consideration when deciding whether to donate or privately sell the vehicle.
IRS Car Donation Rules For Valuation
When taking a deduction on your taxes for the donation of a car to a charitable organization you need to assess the value of the car. The amount of your deduction will depend on two factors. First, you will need to know if the recipient is going to use the vehicle or if they are going to sell it to gain money. Second, determine the fair market value of the car. Each of these situations is treated differently and allows you to deduct different amounts from your taxes.
To calculate the fair market value of your car, you should consult a used car buyer's guide. It will direct you on how to calculate the value for your particular car. There are deductions and additions to the value based on things such as mileage, accessories and the condition of the vehicle.
If the charitable organization is going to sell the car, you will need to know the selling price of the car. If however, they are going to use the car as a work vehicle or use it to aid in the charity work that they perform, you need a statement from them to document the use of the car.
If the value of the car is over $500, you will be limited on your deduction. Based on the American Jobs Creation Act of 2004, you may only deduct the amount of the actual sale of the vehicle by the charitable organization, regardless of the actual value of the car. If the organization is going to be using the car for work then you may deduct the fair market value of the car. The gift must be documented carefully. The document must list the car specifications, mileage, condition and an accessory so that in the case of an IRS audit you can prove the amount of your deduction is correct.
Limitation on Your Ability to Deduct
According to IRS Car Donation Rules, you may only deduct the contribution if you choose to itemize your deductions. Most taxpayers only itemize if they will end up with a greater deduction to their income than is provided by the standard deduction. If you itemize, then you can claim this deduction.
There is also limitation on the amount of your deduction. The amount that you deduct for the car can't be more than one-half of your gross income. If the value exceeds half of your income, you can only deduct one-half of your income.
Check for Eligible Organizations
Not every organization is accepted by the IRS as a charity or non-profit organization for the purpose of taking a tax deduction for charitable gifts. You need to check with the organization and, as a further verification, check with the IRS. The IRS maintains a list of organizations that are eligible for tax deductable donations on their website. They also list organizations that have lost their eligibility. If the organization that you wish to donate to is not listed, you may call the IRS and still be able to obtain a deduction for the donation in some cases.
Abiding by the Rules
Donations to charity are kind and benevolent but if you donate a car, you must abide by IRS car donation rules. Keep your records carefully and document everything. The IRS is strict and inflexible when it comes to following the rules and regulations concerning your tax return.