Car donation tax deduction

Car donation to charities is a noble way of helping the needy people. It also benefits the donors because they can claim tax exemptions and save money. Typically the amount of tax deduction depends on how the charity uses the donor's vehicle. The allowable deduction is limited to the amount at which the car is sold. The charities must provide the donor with a written notification of the sale amount within 30 days of the sale. In case the notification is not received by the donor, the donor cannot claim the tax deduction.

In case the charity uses the car as a part of its programs the donor can still deduct the fair market value. The FMV is the price at which the car will sell in the open market. It is not to be confused with the "blue book" value given by many organizations. The donor has to take into account the car's physical condition, additional features / accessories, the mileage and the general prevailing value of similar models in the local market.

The ideal way to obtain the FMV is to approach an independent, qualified appraiser. The appraiser gives the donor a written appraisal stating the condition of the car's engine, tires, accessories, general wear and tear etc., Such an appraisal is mandatory if the vehicle value is above $5000.

Even in cases where the charity or a for-profit intermediary help the donor in this process, the final responsibility of proving the value to the IRS lies with the donor. Hence donors are advised to be cautious in determining the fair market value of their car before donating to the charity.

In cases where the total deduction for the donor's contribution is more than $500 (the non-cash value, which is the amount received from the sale of the car), the donor must fill and file Section A of IRS form 8283 (Non-Cash Charitable Deductions). On the other hand if the fair market value of the car is more than $5000, the donor must fill the Section B (appraisal by a licensed appraiser).

The donors can refer to IRS publications 561 (Determining the value of donated property) and 526 (Charitable contributions) from the IRS website.

The donor must first check the eligibility of the charitable organization for receiving donations that are tax exempt. They can check from Publication 78 which is readily available both online as well as at many public libraries.

While filing their tax returns the donors must itemize their deductions. Any one who claims standard deduction cannot benefit from this clause.

Record keeping is a must when donating a car and claiming tax deduction. The donor must retain all receipts and forms pertaining to the car donation and its appraisal report from the licensed appraiser. The car owners who would like to donate their cars to charities can also call the IRS on 1-800-829-1040. In case they have any doubts regarding the antecedents of the charities that seek the donation they can easily check up with the State Attorney General's office. In many cases, the CPAs of the donors should be able to help them locate a proper charity that actually helps the needy and is not one of those fakes who take the donors for a ride!