At the end of every single year we will all be hearing ad on the Radio and Tv asking us to donate car and other vehicles to charities. If we don’t pay attention to detail the tax deduction of donated car will be much lower that what we think it may be. Have you ever thought “How to Maximize the Value of your Car Donation?”
In order for you to maximize your tax benefits for donating your vehicle, you need to know the IRS Rules of calculating the value of the vehicle and understand the process of how to Donate your car to charity.
Donating My Car to Charity
Tips, Rules & Lessons before donating a Car to Charity
Not only its important to pick a charity that serves the cause you believe in, its import to know how the donation value will be calculated.
When you donate a car to charity for example Red Cross, the value of your donation is either the fair market value of your vehicle when you donate it OR the value received by the charitable organization( Red Cross for example) for your donation.
Unfortunately, as a taxpayer you cannot choose the value of the donated car or truck.
- If the Charity uses the vehicle, or is in the business of using your vehicle to train others, you can deduct the FMV(fair market value) of the vehicle.
- If the Charity simply resells your donated vehicle, your car donation value is limited to what the organization receives for your vehicle and NOT the usually much higher fair market value of the item.
How to Apply These Lessons when Donating a Car?
Select the Charity wisely. Select an organization that will either use the car themselves or will use it to train others. For Example you may want to consider donating the vehicle to a charity that delivers food to homeless or to senior citizens.
There are some charities that teach driving to under previledged children Other organizations teach auto repair and body shop work to the unemployed.
The cars then are given to other non-profits or needy folks. From the IRS perspective, a qualifying charitable use either;
- makes significant intervening use of the vehicle or,
- makes significant improvement to the vehicle that increases its value or,
- donates the vehicle (or sells it at a below market rate) to a needy person that helps further the cause of the organization.
Tip: It is important for you to be careful not to use many of the advertisers that claim to help a particular cause and simply flip and sell your car for low price. As a result your donation is limited to the amount they received.
Step 1. Prior to donating your car go to a reputable online source and estimate the value of your car.
Online resources like Edmunds.com and kbb.com (Kelley Blue Book) are two very reliable sources to do research regarding your car before donation. Make sure you pick the right condition when valuing your car. You may be asked “Is the conidition of the Car Poor, Fair, Good or Very good. Make sure you pick the correct condition so you don’t have issues later.
Tip: Don’t Forget to make a copy of your car’s title and take photos of your car prior to donating it to the charity. You may be required to demostrate our fair market value claim.
Step 2. When donating your car make sure the charity gives you a proper Form 1098-C at the time you provide your vehicle. Double check the value assigned to your donation form to ensure it meets or exceeds the estimated fair market value of your donation.
Tip: Per IRS Publication 4303 “If your valuation exceeds $5,000 you will need an appraisal. Make sure you provide this form to your tax accountant when you are ready to file your tax return.”
Click here to learn more about How to avoid an Audit by keeping proper documents.
Step 3. If you cannot find a reputable charity that will allow you to maximize your fair market value deduction, consider selling the car and then donating the cash proceeds.
Tip You can use the same steps for evaluating other vehicles such as bikes, motocycles and Rvs
Do I need to inform DMV if I Donate my Car?
Short Anser is Yes. After you Sell or transfer your vehicle “Notice of Transfer and Release of Liablity” is required to be filed.
Per CA DMV Requirements “After you sell or transfer ownership of a vehicle or vessel to another party, complete a Notice of Transfer and Release of Liability (NRL) to let DMV know that ownership of the vehicle/vessel has changed”
Click Here to to See DMV Requirements
Are Car Donations Tax Deductible?
Yes. Car Donations are Tax Deductible as long as you are itemizing when filing your 1040. When you itemize , you file form Schedule A.