Whether you're upgrading to a newer vehicle and don't like the idea of trying to sell your current one on the private market or are trying to dispose of an older car inherited from a relative, you may be investigating your options for a tax deductible car donation. This process can allow you to use your unwanted vehicle for good while eliminating the hassle of a private party sale. However, you'll need to do your homework before embarking on this venture to ensure you receive all the credit (tax and otherwise) you're owed. Read on to learn more about maximizing your federal income tax credit for this charitable donation, as well as some factors you may want to consider when donating your vehicle.
Is your vehicle donation tax-deductible?
In order for you to deduct the value of the vehicle you're donating to charity, you first need to ensure that the charity itself is a qualified organization. Most 501(c)(3) organizations will automatically render you eligible for favorable tax treatment, but non-501(c)(3) organizations may be eligible as well, as long as the vehicle is used for a charitable purpose. If you already have an entity in mind, you can use the IRS website's lookup tool to confirm eligibility before making contact with the charity.
How much can you deduct?
In general, you're not allowed to deduct more than the fair market value (FMV) of your donated vehicle. This value is the price you might ask (or expect to receive) when selling your vehicle to a private party buyer or used auto dealership, not necessarily the "book value" you'd receive if you traded in your vehicle or if it was damaged in an accident covered by your insurance. If you're donating a car that doesn't run or is in poor condition, FMV may be considered the value of the vehicle if sold to a scrap yard.
What are the logistics of having your vehicle delivered to the charity?
Because charities generally want to make the donation process as easy on you as possible, they will often pick up these vehicles at a specified time and place, even towing away those that don't run or drive. In other cases, you may need to drop off the vehicle at a collection center and leave the keys and signed title with a staffer. Once the delivery or pickup is complete, you'll have a tax-deductible charitable donation you can use to lower your tax bill (or increase your refund) next year.
