Towards the end of the year, some charitable organizations typically place ads for vehicle donation as a tax deduction. While it's true that the IRS allows taxpayers to take a tax deduction when they donate a vehicle, there are several things that must be kept in mind in order to get the maximum deduction for your contribution. Here are a few tax tips for donating a vehicle to charity.
How Much Can You Deduct When You Donate a Car to Charity?
The most important thing to remember when you donate a vehicle to a charitable organization is how much you can deduct for the contribution. Contrary to popular opinion, you can't simply write off the fair market value (or the "Blue Book" value) of the car. Rather, you can only deduct the amount for which the charity resells the vehicle. For example, if you have a vehicle with a fair market value of $5,000 and you donate it to a charity that resells it for $2,000, then you can only deduct $2,000 for your contribution. You'll have to wait to receive a copy of the proof of sale from the charity before you can go forward with the tax deduction.
How Will the Charity Use the Car?
Another point to consider is how the charity intends to make use of the vehicle. If the charity does not intend to resell the vehicle, you may be able to claim the fair market value as a deduction as long as the charity puts the vehicle to use. However, you'll also have to make sure that you don't receive any other perks from the donation. In other words, you can either deduct the fair market value of the vehicle or you can receive other things from the charity in exchange for the vehicle, but you can't do both.
Is the Charity a Qualified Organization?
However, none of these deduction guidelines will matter if the charity is not a qualified organization in the eyes of the IRS. To avoid having your deduction disallowed by the IRS, you should take the time to make sure that the charity you're considering donating to is a qualified non-profit organization before you make your donation. Even if the charity is a legitimate non-profit, you'll still run into trouble if the staff doesn't keep up with their tax records and submit the appropriate paperwork to the IRS.
Before you hand over your vehicle's keys to a non-profit organization, take the time to learn about these tax tips for donating a vehicle to charity. By doing so, you'll ensure that the IRS allows your contribution and that you'll get the most out of your donation.
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