If you are getting ready to donate a car to a charity, it is important that you understand the financial and tax-related implications of donating a car. Here are three things you need to know.
#1 Make Sure The Organization Is Really A Charity
The first thing that you need to do is make sure that the organization you are donating to is actually a charity. The organization needs to be considered a 501(c)(3) organization by the IRS in order for you to claim the donation on your taxes. Additionally, organizations that have a tax exempt status, such as a religious organization, would allow you to claim the donation on your taxes.
If you are not sure if an organization is tax-exempt or has 501(c)(3) status, just ask the charity or visit the IRS website to check out their status.
#2 Find Out How Your Vehicle Will Be Used
Second, you need to find out how your vehicle will be used. If your vehicle is going to be scrapped for parts or if it is going to be auctioned off, you cannot write off as much on your taxes as you can if they give the vehicle to a needy individual to actually use.
If they scrap or auction your vehicle, you'll only be able to claim a much smaller amount. On the other hand, if the vehicle is in good working condition and can actually be donated to someone, then you'll be able to deduct the fair market value of your vehicle. You can find the fair market value by using one of the sites online that allows you to put in all the features of your vehicle in order to figure out what you would be able to sell it to another private party or dealer for.
#3 Figure Out How You Want To Do Your Taxes
Finally, you can only claim the donation if you itemize your deductions. That means you will not take the standard deduction and will instead itemize your deduction. If this is the only thing you have to itemized, you will not reduce your taxes and may increase them by forgoing the standard deduction. If you already know that your itemized deduction meets or exceeds the standardized deduction, then itemizing your car donation could actually reduce your taxes.
Donating a car is a great thing to do; however, whether or not it will benefit your financially depends upon how you file your taxes and how the charity plans on using the vehicle.Share