Tips for Tax Time: Ensuring you get a successful
Car Donation Tax Deduction
Donating a vehicle is great because it allows you to help a cause you believe in. Things get even better when your gift turns into a nice car donation tax deduction for you. While helping those in need is the most important part of this transaction, it would be very disappointing to find out at tax time that your deduction won’t stick because of some technical formality that was overlooked.
Here we’ll try to touch on a few issues that you want to ensure are covered during the donation process.
The first thing to remember is to ensure that the charity you’re considering donating to is qualified as an IRS-approved 501 (c )(3) organization. The receiving organization must fall into this category in order for you to claim your deduction. The receiving organization should be able to tell you their status, and it’s highly recommended that you verify this by checking with the IRS on their website. On the IRS website, search for “Publication 78.” IRS Publication 78 is a cumulative list of most organizations that qualify in this category.
Once you’ve ensured that your auto donation will go to an IRS-approved 501 (c )(3) organization, make sure to stay in touch with the charity to monitor the progress of your vehicle’s resale. Under a set of new rules established in the American Jobs Creation Act of 2004, the receiving charitable organization must, within 30 days of the sale, provide you with an acknowledgment stating the amount of the gross proceeds of the sale.
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Click Here to read IRS Publication 4303, which gives valuable information to prospective donors. |
All charities conduct business a little differently, and naturally this may also apply to the way they handle your car donation. Your vehicle will likely be auctioned by the charity, but they could take other routes with handling your donation. If the charity decides to significantly use, or materially improve the vehicle, they must certify that intended use and duration, and provide an acknowledgment within 30 days of your making the vehicle contribution, in which case you can deduct the ‘fair market value’ of the vehicle.
If the vehicle is in very poor condition, some charities may opt to 'part it out,' selling it off piece by piece. They may take this approach if they deem it to be the way to get the most value from your donation. But regardless of how they use the vehicle, you should be able to claim the vehicle's fair market value as a deduction on your tax return.
With acknowledgment in hand on the amount to deduct, it’s on to tax time. When you file your tax return, make sure you show your donation using an itemized tax return. Your accountant should be able to help you with this and any other issues related to your specific donation, in order to ensure that your tax deduction is a success.
In closing, remember that every donor’s specific circumstances are different. Do your due diligence by checking with your attorney and accountant before and after donating, to ensure that all the pieces fall into place as needed. Car donations allow you to make a huge difference for a charitable organization and the people they benefit. Doing your homework about the donation process will help you to make sure you’re rewarded in return at tax time.
Looking for a nationwide list of agencies accepting car donations?
Visit our Charity Directory page!
There you'll find organizations from coast to coast, including listings by state, to help you narrow the list of candidates to whom you'd like to donate.
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