On the surface, donating a car to charity may seem like an easy thing to do. Drive it to your favorite organization, transfer the title, hand over the keys and get a receipt. But in reality there is much more involved. You need to know that the organization has the right 501(c) status and is approved by the IRS to accept deductions, you have to know the exact fair market value of your vehicle, and you need to know that the organization you choose is in a position to follow through once you've completed the donation. The paperwork, time, and energy invested in this idea can be a little complicated and can backfire if everything is not in proper order. On the other hand, if you take the time to do it right the tax advantages of donating your car are well worth it.
Know The Limit
In most cases, the taxpayer will have a threshold that he's permitted to claim when giving away a vehicle. On average, this amount is around $500.00. While you can claim vehicles over this value, expect to do a lot more paperwork for your efforts if you want to enjoy the many tax advantages of donating your car.
The Exceptions
It should be noted that there are a few exceptions to the $500 limit that will allow you to claim the car's fair market value as a deduction on your taxes. If the organization decided to immediately sell the vehicle and they received the fair market value of the car, you would be entitled to claim it even if it was over $500. In addition, if the organization decides to use the vehicle before actually selling it, you could claim the use of the vehicle as part of the transaction as long as you have the documentation to prove that it was used in the service of a non-profit organization.
Bargain Breaks
Another one of the many tax advantages of donating your car is you can also claim the full value of the vehicle if the charity chooses to sell the car for much less than it was really worth. Even if they choose to give the car away to another individual you'll still be able to claim the full market value of the car.
It's important to note that your tax deduction cannot exceed the true value of the car, even if the organization received more in the sale. If your car's value was listed at $100 and they sold it for $300 you would still only be allowed to claim $100 deduction on your taxes.
While the ability to claim tax deductions for your car is a wonderful allowance by the IRS you must keep in mind that you need to follow the rules exactly. We all know how the IRS works, you must make sure that every detail is in order and accurately documented or your claim may very well be rejected. However, if you're able to follow all the rules and regulations of the IRS, you may find that you're getting a benefit for giving a gift to support a cause that you believe in.