Summary:
In prior years, if you wanted to donate your car or other vehicle to a charity, it was easy. All it took was to select the charity, give them a call and they would pick it up and the ownership documentation. This part is still easy and many charities advertise how easy this part is for you. If you want to claim a tax deduction for that car donation however, the tax rules have changed a little.
Article Body:
In prior years, if you wanted to donate your car or other vehicle to a charity, it was easy. All it took was to select the charity, give them a call and they would pick it up and the ownership documentation. This part is still easy and many charities advertise how easy this part is for you.
If you want to claim a tax deduction for that car donation however, the tax rules have changed a little. The reason for the changes were because people were over-estimating the value of vehicles then taking the higher amount off on their income taxes.
First, to even qualify for this tax deduction, you need to be itemizing deductions on your income tax. This effectively eliminates everyone using a 1040 short form, or 1040EZ or those who don't itemize. Further charitable deduction cannot be greater than 50% of your total income. I don't quite understand why this matters to the government but it's in the rules. Further, the amount you can deduct for the contribution depends on what the charity does with vehicle donations. Check the IRS resource publication 4303 at www.irs.gov for more information and details. Now is a good time to state that I am not a tax attorney, accountant or make my living working with the tax code. For more specific information on donating you car to charity or other related questions, I suggest contacting a local tax professional.
A 500 dollar deduction is the threshold for increased paperwork requirements. If however your charitable gift is worth over the 500 dollar limit, you need acknowledgement documentation from the charity. This is typically given to you when they pick up the vehicle. This document must have the following information for you to claim any amount over the 500 dollar basic deduction.
1. Your name and Taxpayer ID [usually your social security number]
2. The vehicle Identification numbers
3. Date of contribution
4. An any one of these pieces of information. a) statement that no goods or services were received for the gift. OR b) a description and good faith estimate of anything received by the donor.
There are a few other details that should be included but this is the basic outline required.
The IRS also limits the value of the deduction to what the charity actually received from selling the vehicle. Generally however, you can use fair market value if certain rules are followed and you obtain a statement made by the charity regarding their plans for the vehicle. You may also be required to obtain written acknowledgement from the charity within 30 days from the date of the vehicles sale or 30 days from the date of donation.
So the value of the deduction is based on what the charity actually sold the vehicle for on the open market. Other rules apply if they decide to keep it but generally most charities of any size take their donated cars and simply sell them on the market. This means that if you donate your car to charity and it has a resale value of 5,000 dollars, you simply cannot legally take a 5,000 dollar deduction unless the charity actually sells the car for that amount, or is subject to the other rules.
If the charity sells your car for 400 dollars, even though it was worth 5,000, your legal deduction is only 400 dollars.
Finally, to make things even more complicated, the value of the vehicle cannot be more than the fair market value. The IRS publication noted above has specific explanations about how to determine value. I personally have simply sold the car and made a cash donation to he charity of my choice. Yes, it takes a little longer but I didn't need to count on anyone else to provide the necessary documentation and there was no question about the value of the donation or deduction.
In prior years, if you wanted to donate your car or other vehicle to a charity, it was easy. All it took was to select the charity, give them a call and they would pick it up and the ownership documentation. This part is still easy and many charities advertise how easy this part is for you. If you want to claim a tax deduction for that car donation however, the tax rules have changed a little.
Article Body:
In prior years, if you wanted to donate your car or other vehicle to a charity, it was easy. All it took was to select the charity, give them a call and they would pick it up and the ownership documentation. This part is still easy and many charities advertise how easy this part is for you.
If you want to claim a tax deduction for that car donation however, the tax rules have changed a little. The reason for the changes were because people were over-estimating the value of vehicles then taking the higher amount off on their income taxes.
First, to even qualify for this tax deduction, you need to be itemizing deductions on your income tax. This effectively eliminates everyone using a 1040 short form, or 1040EZ or those who don't itemize. Further charitable deduction cannot be greater than 50% of your total income. I don't quite understand why this matters to the government but it's in the rules. Further, the amount you can deduct for the contribution depends on what the charity does with vehicle donations. Check the IRS resource publication 4303 at www.irs.gov for more information and details. Now is a good time to state that I am not a tax attorney, accountant or make my living working with the tax code. For more specific information on donating you car to charity or other related questions, I suggest contacting a local tax professional.
A 500 dollar deduction is the threshold for increased paperwork requirements. If however your charitable gift is worth over the 500 dollar limit, you need acknowledgement documentation from the charity. This is typically given to you when they pick up the vehicle. This document must have the following information for you to claim any amount over the 500 dollar basic deduction.
1. Your name and Taxpayer ID [usually your social security number]
2. The vehicle Identification numbers
3. Date of contribution
4. An any one of these pieces of information. a) statement that no goods or services were received for the gift. OR b) a description and good faith estimate of anything received by the donor.
There are a few other details that should be included but this is the basic outline required.
The IRS also limits the value of the deduction to what the charity actually received from selling the vehicle. Generally however, you can use fair market value if certain rules are followed and you obtain a statement made by the charity regarding their plans for the vehicle. You may also be required to obtain written acknowledgement from the charity within 30 days from the date of the vehicles sale or 30 days from the date of donation.
So the value of the deduction is based on what the charity actually sold the vehicle for on the open market. Other rules apply if they decide to keep it but generally most charities of any size take their donated cars and simply sell them on the market. This means that if you donate your car to charity and it has a resale value of 5,000 dollars, you simply cannot legally take a 5,000 dollar deduction unless the charity actually sells the car for that amount, or is subject to the other rules.
If the charity sells your car for 400 dollars, even though it was worth 5,000, your legal deduction is only 400 dollars.
Finally, to make things even more complicated, the value of the vehicle cannot be more than the fair market value. The IRS publication noted above has specific explanations about how to determine value. I personally have simply sold the car and made a cash donation to he charity of my choice. Yes, it takes a little longer but I didn't need to count on anyone else to provide the necessary documentation and there was no question about the value of the donation or deduction.
