Car Donation For Tax Deduction
Many non-profit organizations use car donation programs as a source of funding. These programs typically will accept all types of vehicles, boats, motorcycles, and recreational vehicles, in running condition or not. The charity sells your vehicle at auction to produce revenue. The donator can receive a tax deduction for their donation.
However, a car donation tax deduction isn’t always as clear-cut as it seems to be. If you are looking at donating a vehicle primarily for the tax advantages, you should first determine whether you will be able to use the deduction that you receive.
If you already itemize your taxes, then you can use the deduction. If you haven’t itemized taxes in the past, then you might not be able to take advantage of the deduction.
The Basics of Tax Deductions
In the United States, your income taxes are determined first on your gross income, all the money you are paid. Standard deductions are the deductions you automatically receive, based on your personal circumstances. Tax deductions for charitable donations, mortgage interest, certain medical expenses, tax preparation fees, and other allowed expenses are “itemized deductions”. The deduction code works in your favor, by requiring you to take the larger of the two deduction types.
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In other words, if your itemized deductions are not greater than your standard deduction would be, then you are required to take the standard deduction. If you already file an itemized return, then you will be able to use your charitable donations. If you don’t you should use the tools on the IRS website to determine whether filing an itemized return is an option for you.
How Much Will I Receive For My Donation?
Reputable non-profit organizations will provide you with a receipt when they accept your vehicle, as well as documentation after the sale of your vehicle. For vehicles sold as scrap or recycled, you generally will receive $500.00. If your vehicle sells for more than $500.00, you will receive documentation of the actual selling price. How much of the selling price above $500.00 that you can deduct depends on your gross income, as the tax code will not allow you to deduct more than 50% of your gross income.
As an example: if you have a gross income of $35,000, and a charity sells your classic car for $16,000, you may be able to deduct the full amount. However, if your car sells for $20,000, your maximum allowed deduction would be $17,500. Charitable donation regulations change regularly, so you should read IRS Publication 4303–A Donor’s Guide to Car Donation. The IRS has several other publications available that address charitable deductions, limitations, and lists of non-profit organizations the IRS recommends that are valuable reference materials.
Another option is to choose a charity that will refurbish your car and keep it for the organization’s use, or sell it directly to a needy individual or family rather than through an auction. In this instance, you may be allowed to claim the fair market value of the vehicle, with proper documentation. There are also provisions in the tax code that apply to cars donated to a non-profit that are then given free to disadvantaged people. Your local non-profit can provide information on these options.
Once You Have Donated Your Car
To use your car donation tax deduction, you’ll need to keep all of the paperwork you receive from the organization that receives your vehicle. All tax paperwork must be kept for seven years, and this is especially important if you use itemized deductions. If you have your taxes prepared by a professional, they will process this deduction with your other itemized expenses. If this will be your first itemized return, using a professional would be a good idea.
The Final Analysis
While receiving a tax deduction for a vehicle donation is a nice benefit, for most people, it’s not the primary reason for donating a car to charity. Even if you can’t use your deduction, the non-profit organization you choose will receive the benefit. If you are able to use the tax deduction, then by all means, do so. Even if you can’t use the deduction, keep in mind that as of 2011, over 73% of the money raised by non-profit organizations in the USA came from private individuals, and part of that money comes from the sale of donated items, including cars.
As the tax code changes, and limits are imposed that affect charitable deductions, non-profit organizations will be impacted. Tax deductions are valuable to those who can use them, but your car is always valuable to a non-profit organization.