With better planning, a used car donation will not just benefit the charity organization. It will also benefit the donor. The Internal Revenue Service or IRS will allow you to deduct the used car donation from your taxes provided it is entered as a charitable contribution deduction.
The IRS has 2 methods to compute the amount of your tax deduction. The method to be applied will depend on the manner the charity organization used the proceeds from the sale of your used car.
Usually, tax deductions are based on the final sale price of the vehicle. Under other circumstances, the deductible can be calculated based on the fair market value of the car.
Step #1 – Get the Final Sale Price of Your Used Car from the Charity
If you want to get the tax savings benefit of a used car donation, stay in contact with the charity group. You should find out from the organization how much they sold your car for.
The final sales price of your vehicle is the amount that can be deducted from your taxes. Thus, if the charity was able to sell your car for $4,000, this sale price becomes your deductible amount.
In the event the charity group decides to keep your car for its personal use or sells it to another person at a massive discount, then you can use the car’s fair market value as the tax deductible amount.
If the fair market value of your car is $5,500, then that is the amount you can deduct from your taxes.
Step #2 – Find Out the Fair Market Value of Your Car
According to the IRS, people who plan to donate their used cars should find out the fair market value of their vehicle. To do this, the IRS suggests that you refer to a used car price guide you can trust.
A good used car price guide is the Kelley Blue Book which you can find in your library or the Internet. Find out the private party price of your used car. The important details to look out for are model, overall condition, and make of your car.
Step #3 – How to Claim the Tax Deduction
Where should you indicate the amount of the tax deduction in the filing form? Write it down on line 17 of Schedule A. Keep in mind that in order to claim a tax deduction, you must itemize.
Therefore, the summary of all expenses that is eligible under Schedule A must be greater than the standard amount in your filing status.
The easier and faster way is to allow TurboTax to file your taxes for you.
Step #4- Fill Out Additional Forms
If the amount of the proceeds from the sale of your used car exceeds $500, you will have to fill out Form 8283. For deductible amounts that fall between $501 and $5,000, you will be required to fill out Section B which likewise needs a written appraisal as a proof of documentation.
Here are a few tax filing tips you can use:
• If the proceeds from the sale of your used car only amounts to $500 or lower, deduct $500 or the fair market value of your car depending on which amount is lower. Thus, if your car has a fair market value of $800 but was sold for $400, you should use $500 as the tax deductible amount.
• A charity will usually indicate the price your car was sold on Form 1098-C.
And some words of wisdom as well:
Make sure your generous car donation has complete documentation. The documentation provided to you by the charity group should indicate your name, the identification number of the used car, the date you donated the used car, and a clear description of other items or goods and services that you received.