December 28, 2011 : Teresa L. Clark - Corporate Communications
Car Donations can be the Ticket to a Tax Deduction
Ever wonder how many people donate their old cars? According to the Charity Navigator, approximately 750,000 taxpayers claimed a tax deduction for donating a vehicle in 2000, reducing their total tax liability by more than $650 million. If you have a car you don’t want to sell or trade in, donating your car might be the right answer for you.
Some of the rules that apply for donating smaller items also apply for donating vehicles. For example, for charitable donations to be tax-deductible, they must be made to qualified, tax-exempt organizations and claimed as itemized deductions on tax returns. They also must be in good, usable condition – good enough that someone would pay for them.
Post-donation use options and what they mean for donors
When a charity accepts a car as a donation, one of two things is likely to happen. One is that the organization will sell the car. If the car is sold, the donor can claim the sales price as a tax deduction if there was no “significant intervening use or material improvement” on the part of the organization, according to the Tax Institute at H&R Block. This means the car cannot at any time have been used by the charity to help get its work done, and the organization cannot have made major repairs or alterations to the car that increased its value.
The other option is that the car will be kept by the organization for the use of carrying out its business, which allows the donor to claim the fair market value of the car. Just so you know, the fair market value is not the highest number found in the Kelley Blue Book for your car’s make and age. Instead, it is the reasonable amount for which you could expect to be paid for your car based on the condition it is in at the time of the sale.
enrolled agent at H&R Block. “Keep this document with your other tax records because you will need it when you prepare your return.”
“Within 30 days of donating your car, you should get a document stating whether the car was sold or how the charity will use the car. If the car was sold, the sales price is your deduction amount,” said Elaine Smith,
Documentation differences based on use
What happens to the car after it is donated will impact how much you can claim for your tax deduction and what kind of substantiation you will receive from the organization to which you made the donation.
If the car is sold, the document should include this information: donor name, donor Social Security Number, vehicle identification number, date of contribution, date car was sold, certification that the sale was between unrelated parties and statement that the gross sales proceeds is what can be claimed for the deduction.
If the car is kept by the organization, the document should include this information: donor name, donor Social Security Number, vehicle identification number, date of contribution, statement regarding use and improvements made, and statement declaring the car will not be sold before it is used for how long and as intended for the organization’s charitable purpose (e.g., when a family service organization will use the car to transport seniors to doctor’s appointments).
Regardless of how the car is used, if it was determined to be worth more than $500, you must submit Form 8283 with your tax return to document the amount of your non-cash charitable contribution.
Now, then, when? What’s the date of the contribution?
You can claim the tax deduction for the year you donate the car, even if it is not sold until the following year. If it takes a while for the organization to sell the car, you might need to amend your tax return if the acknowledgment arrives after you’ve already filed.
Still wanting to make final tweaks to reduce your 2011 tax bill? Even if you don’t have a car to donate, what you can give that is usable and in good condition can make a positive difference for someone else. Use the Salvation Army donation guide or H&R Block’s DeductionPro to estimate the value of non-cash donations.