A Car Donation Could Help With Your Taxes You may just deduct a car's fair market value on your tax return under very specific conditions.
It's easy to give a car to charity if everything you wish to do is eliminate it. Simply phone a charity that accepts older vehicles and it'll tow your pile off. However, if you want to maximize your tax benefits, it is more complicated. Here's a walk-through of some of the questions, along with the usual proviso that you should speak about such issues with your own tax preparer before you act.
You Have To Itemize Your ReturnIf you wish to keep a car donation to decrease your federal income taxation, you have to itemize deductions. You might itemize even when the given auto is the only deduction, but that is usually not the most suitable choice.
Here's the math: Imagine you're in the 28 percent tax bracket and the allowable deduction to your vehicle's donation is $1,000. That will help save you $280 in taxes. If you're in the 15 percent tax bracket and you also receive exactly the same $1,000 deduction, it is going to reduce your earnings by $150.
In case the automobile donation is the sole deduction, then it's extremely likely that carrying a normal deduction might help save you tens of thousands more dollars in earnings. The only way that donating an automobile frees you any tax benefit is if you've got lots of deductions and if their overall, by way of example, auto, surpasses the normal deduction. And keep in mind, you can always donate as far as you want to charities, but the IRS limits just how far you can claim on your tax return.
A skilled charity is one which the IRS acknowledges as a 501(c)(3) company. Religious organizations are a special case. To help you figure out if it's the charity is qualified, then the simplest thing to do is to use the IRS exempt organizations website, or phone the IRS toll-free amount: 877-829-5500.
In this situation, neither the buyer nor the vendor could be an auto dealer. Both have to be private parties.What complicates the matter for taxpayers would be that under current IRS guidelines, you can only deduct a vehicle's fair market value under four very specific requirements:
1. If your charity auctions your car for $500 or less, you are able to keep either the average market value or $500, whichever is less.
2. When the charity intends to create "significant intervening use of the vehicle." To put it differently, the charity may use the car in its own work.
3. Following the charity plans to make a "material improvement" into the vehicle, not just regular maintenance.
4. Following the charity gives or sells the vehicle to a needy individual at a cost significantly below fair market value.Edmunds can help you figure out your vehicle's fair market value with its Appraise Your Auto calculator. Input the vehicle's year, make and model, as well as such information as trim level, mileage and condition. By looking at the private-party cost, you are going to get a precise idea about what your vehicle is worth.
Note the warning out of IRS Publication 4303: "Should you use a car pricing guide to determine fair market value, make confident that the sales price recorded is to receive a vehicle that's exactly the specific same make, model and year, sold in the specific same state, and with the exact same or substantially donating car similar options or accessories as your car or truck.
"Obtaining Car Fair Market Value Is UnusualIt's not sensible to expect that your car will meet one of those strict fair market value demands. Only about 5 percent of donated vehicles are acceptable for usage by freelancer recipients. Approximately a third of contributed cars are junked, and the rest are auctioned off.
So unless your automobile is in good or great condition, it will most probably be sold in auction or into a car salvage yard. And note that this cost isn't always something you'll understand when you donate the automobile, or perhaps before the coming tax-filing time, since a company has up to three years to offer your car.