Car Donation Tax Deduction

You have to follow the IRS rules to qualify for a tax write off when you donate your car. The information below is drawn from IRS

Here's what you need to know to get your tax deduction:

1) You need to qualify.

To get a tax deduction from your car donation,

2) The charity you donate to needs to qualify

The charity must be either a religious organzation (like a church, monastery or synagogue), or it must be a section 501(c)(3) organization.

You can check an organzation's 501(c)(3) status in the IRS's annual publication IRS Publication 78, Cumulative List of Organizations. It is available both as a pdf and an online database.

Keep in mind that any religious organzation won't be listed in Publication 78. If you are unsure about whether or not an organization qualifies, call the IRS directly at 877-829-5500. You'll be able to speak to a real IRS agent who can determine whether your donation is acceptable. Be sure to keep the agent's name and contact information, along with the date of when you called and what they said.

3) How much money you actually save from your tax bill depends on your tax income bracket.

If you are in the 10% income bracket, for example, you'll "save" only a third of what someone in the 30% income bracket would have saved, even if you both sold the same car under the same circumstances. Car donation does not make financial sense for everybody, though many argue there are other virtues to donating a car besides being thrifty.

4) There are rules about how much you can deduct.

Deductions over $500 get complicated, so before you imagine a huge tax savings, get ready to work for it. See IRS Publication 4303: A Donor's Guide To Car Donations for more information. (Please note that clicking on that link will download a pdf file that your browser will ask you to open).

In car donation, there are two ways of looking at the value of your car. The most common is "fair market value" -- how much you would get for the car if you sold it yourself. You can get fair market value by checking the Kelly Blue Book and honesty accessing how your car measures up.

The second value of your car is what it sells for at auction. This is known as the "gross proceeds from the sale" in IRS-speak. Most donated cars, by the way, are sold at auction. You will not know how much your car sells for at auction until the charity you donate it to sends you the auction receipt, which it is required to do within 30 days of the auction.

If your car is sold at auction for less than $500, you can deduct the fair market value of the car (the Kelly Blue Book value) or $500, whichever is less. So if your car sells at auction for $400, and its market value was $600, you can deduct $500. If the charity does not sell your car in the same year you donated it (and the same year you wanted the tax deduction for), you may have to file an amended return after you receive the sales receipt.

The only times you can deduct more than $500 for your car donation is if the charity keeps the car for their own use (ie, they do not sell it at auction). You will need a written ackowledgement from the charity, on their letterhead.

If you deduct more than $500 for your car donation (per the IRS page here), you will need

To deduct $5,000 or more, the requirements get even tougher. You'll need everything for the $500+ deduction mentioned above plus: