Tax Write Offs
When donating a car, you need to keep a few things in mind before you do donate the car. You want to make sure that the charity is going to get a large portion of the value of the car, if not, then you might end up contributing a car where most of the money goes to a for-profit business venture.
Here is some information for you to remember when you are considering doing a car donation. We will also give you the needed information to properly file the write-off for your tax deduction as well. Ultimately, your donation will help people who need a car, we just want you to donate to the right company and be able to give you the best possible write-off available!
- If you are looking to get the absolute maximum deductible for your donation and to feel good about donating your car to help others who are not as fortunate, give the car to a charity that will either donate the car directly, use it for their own service or if they end up having to sell the car, the charity gets the lion-share of the money that it is sold for. If none of that happens, the deduction will not be based on the actual value of the car but a limited amount of money the actual charity receives from the sale of the car. If you are talking to a charity that does sell the car, you will want to ask them what percentage is going to the actual charity.
- When you start this process, you will want to know if the company that you are donating the car to doesn’t involve a third-party organization. We suggest that you investigate driving the car you are considering donating as opposed to having it towed, but only if you feel that the car is safe to drive. You will want to ensure that the charity is getting as much of the value of the car as possible.
- Before you finalize the donation, you will want to ask the company for their IRS letter of determination which is the documentation the IRS gives the charity to prove that they are in fact a tax-exempt organization.
- We know that this should go without saying, but you never know! Make sure that when you are done with the donation that you get a receipt for you donating the car to the charity. The reason we are saying this is that the IRS is known for performing audits for non-cash donations, and you will want to have all your paperwork organized if you do happen to get audited.
- If you are donating a car that has a value that is higher than $500, you must fill out a Section A of IRS Form 8283, you will need to attach that form to your tax return and to get that form just simply CLICK HERE. To make the IRS happy you must file this form with a written notice from the charity as well. If the charity will end up selling the car, will need to also provide you with a notification that the car was in fact sold, it is called arm’s length, which basically means that the parties to the sale from you to the ultimate buyer are unrelated and they must provide this documentation within 30 days.
- Now if you are going to donate a car that is worth more than $5000, you will need to take it to be appraised independently, and of course, you will have to fill out the previous from mentioned that you can get to in the link above. If you happen to have a car that is worth less than $5000, you will want to reference the KBB(Kelly Blue Book), so you can better determine what the actual market value of what the car is worth prior to donating the car. You will also to make sure that the information you are providing to KBB including the date, condition of the car that you are donating, and the mileage. This will allow you the opportunity to the multiple factors at determining the value of the car to maximize your write off!
- It will also help you to take pictures of the car that you plan to donate, save all the receipts for any upgrades to include tires, brakes, engine, transmission etc.
- When you are finishing this process, keep in mind that it is up to you to provide the IRS and not the charity all the correct information. This is important to remember especially if the IRS would decide to impose a fine, which sounds scary but if you follow our directions, you should not have to worry about this.
More Tax Information about donating your car!
We wanted to go over this information in a little more detail for you because it could be confusing, and after all, you are looking to do a good thing to donate your car, so we thought it would make sense just to give you a quick overview one more time in case you might be confused about the process.
So, when you go through the process of claiming your tax deduction, you will need to report the amount of your deduction on the 17th line of the Schedule A. Since you can only claim a deduction for the donation of your car if you decide to itemize the deduction. Keep in mind that the total of all your expenses that are eligible on the Schedule A form will have to exceed the overall standard deduction amount that you have for your filing status.
As we mentioned above, you will need to have Form 8283 handy for your car donation if it turns out to be more than $500. If the value of your car ranges between $501 and $5000 don’t forget about filling out Section A and if the car is worth more than $5000 then you must fill out Section B and in addition, you will have to have a written appraisal to prove that the car does have that value.
We know that this is quite a bit to take in and what we are providing is some basic information on how to get the credit for your car donation in Albany, and we understand that you might have some more questions. So below are some of the most common questions.
More Questions About Donating a Car to a Charity
- If I donate my car in Albany, will the donation be good for the rest of the year even if I didn’t get the receipt to the following year? The answer is yes, you can reference the IRS publication 4303, it is a guide to car donations and it says, in a nutshell, that the date of the contribution falls in the year that the IRS has received the donation form even if you donate it on the 31st of December but don’t get a physical receipt afterward. Therefore, it is important for you to have all your documentation lined up.
- If we are promised some sort of incentive to donate my car to a specific charity, for example, a vacation package, will this affect the tax deduction when I file my returns? The answer to this question is, of course, it will. If you receive a gift that has a stated value to it, in exchange for a donation, then the receipt you are provided from the charity will need to state what the fair market value of the gift is and that will need to be subtracted from the overall car donation. So how that works, if the car is sold for $2500 and the gift you have received is valued at $1500 then you can only write off $1000.