A customer of mine, whose car recently “died”, told me he wanted to donate that car to charity for a tax deduction. I know that a number of people have expressed an interest in doing the same thing with their cars but think it is as simple as dropping their car off at their favorite charity and then just taking the tax deduction.
Well it not quite that simple.
So for my customer, all of those who have expressed an interest in donating their vehicle, and all of my valued readers, I thought I would review the rules for donating a car.
I have seen a lot of ads that entice you to donate your car to a charity and get a tax deduction – but you should be aware . . .
First, you will get no tax benefit from donating your personal automobile to charity unless you can itemize on Schedule A! This means the total of your “itemizeable” deductions exceeds your applicable Standard Deduction amount. While the donation itself can put you over the top and cause you to be able to itemize, to get the maximum tax benefit you must be able to itemize without the car donation.
A few years ago a customer expressed excitement when telling me that he donated his car to charity, and that he expected to get a big tax deduction. Unfortunately, his tax benefit from the deduction was zero, nothing, zilch. He was not able to itemize, and had not in the past, and even with the addition of the value of the car he was still not able to itemize.
FYI – you may want to itemize if your total deductions do not exceed your applicable Standard Deduction amount if you fall victim to the dreaded Alternative Minimum Tax (AMT). The Standard Deduction is not allowed in calculating AMT, but an itemized deduction for charitable contributions is.
Second, the amount you receive “in your pocket” will be only a small percentage of the car’s value. The amount of cash you will realize depends on your federal and, if your state allows a similar tax deduction (New York does not), state tax bracket.
And third, you have to wait to file your tax return to get the money. If you donate a car to charity today you will not see the cash until at least next tax season.
When you donate a vehicle (car, motorcycle, boat, or airplane) to a church or charity the amount you can deduct depends on what the organization does with the donated vehicle.
(1) If the organization sells the vehicle without significant interim use or material improvement your tax deduction is limited to the gross proceeds from the sale.
(2) If the organization intends to temporarily or permanently use the vehicle in its operations, or make “material” improvements to the vehicle before selling it, or sell the car to a “needy” individual at a price that is significantly below market value, or give the car to such an individual, you can deduct the “fair market value” of the vehicle.
You can use the “private party value” for the vehicle, adjusted for mileage and condition, as listed in the Kelly Blue Book (www.kbb.com) or a similar established used vehicle pricing guide. If the fair market value of the vehicle is more than $5,000.00 you must obtain a formal appraisal.
To claim a deduction of more than $500.00 for donating a motor vehicle to charity you must include Copy B of the IRS Form 1098-C, provided by the charity, with the filing of your Form 1040.
The Form 1098-C will include the name and Taxpayer Identification Number of the donee organization, the vehicle identification number, the date of contribution, and information on what the charity did with the vehicle. Form 1098-C must be issued within 30 days of either the date of the contribution or the date of the disposition of the vehicle by the donee organization. The charity can give you a statement in lieu of Form 1098-C as long as it contains all the necessary information discussed above.
So, these are the basics of donating a vehicle to a charitable organization and taking a tax deduction for that donation. If you are considering donating your vehicle, don’t miss out on a very valuable tax deduction. Call Solid Tax Solutions (SolidTaxSolutions.com) before you make the donation: (845) 344-1040.
Your wallet will thank you!
Bruce – Your Host at The Tax Nook
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