By donating a used car to charity, you’re not only making a meaningful and positive impact on someone’s life, but you’re also saving money on taxes if it’s included under your charitable contribution deduction.
With a bit of planning and some research, you could maximize your tax deductions based on the value of your donated car. We’ve prepared some general information, resources, and links to the pertinent IRS forms below. These are all updated for the 2020 tax year. If you have more specific questions, consult your tax advisor.
1. Make sure that your charity of choice is an IRS tax-exempt organization.
Donating your used vehicle to IRS tax-exempt organizations is a requirement for you to claim your tax deduction. In general, these include faith-based nonprofits, religious groups, educational or humanitarian organizations.
You can use this helpful search tool from the IRS:
2. Find out how the charity is using your car donation.
Once the charity assesses your used vehicle, they will advise you if it will be sold or if it will be used for other purposes. So, depending on usage, you are required by the IRS to calculate your tax deduction in one of the following ways:
- If the charity sells your car, your deductions are limited to its sale price.
- If used for other purposes, your deductions will be in the amount of the car’s fair market value.
With our Good Neighbor Garage Programs (GNG), you have the opportunity to maximize your tax deductions because we can make substantial repairs and improvements to all donated vehicles, and we also sell cars at significantly below-market value as part of our vehicle placement program.
3. Find out the charity’s sale price.
If your car was sold, you can determine your tax deduction when the charity has informed you of your car’s sale price. The charity is required to report the sale price to you within 30 days in Form 1098-C – “Contributions of Motor Vehicles, Boats, and Airplanes”.
Your tax deduction depends on the sale price or how the charity uses the car. To determine your claim amount vs. sale price/car value, we recommend that you read IRS Publication 561 – “Determining the Value of Donated Property.” If unsure, you can also consult your tax advisor.
4. Calculate your car’s fair market value.
There are several IRS-approved used car guides and resources you can find online to help you determine your car’s fair market value. Here are a few of the most popular:
In general, you’ll need your car’s make, model, and manufacture year. Other details like the Vehicle Identification Number (VIN) and license plate number will be required, as well. If you’re unsure where to find your vehicle’s VIN, there is a wealth of resources online. A quick search should point you in the right direction. If in doubt, you can always get in touch with the car manufacturer.
Remember to use the private-party value when listing your car’s overall condition. And do take care to give a fair representation of your vehicle’s physical state; e.g., if your vehicle has dents, scratches, excessive wear and tear, etc., don’t estimate its fair market value as that of a car in excellent condition.
Note, however, that according to the section “Deductions of More than $5,000” in IRS Publication 561 – “Determining the Value of Donated Property,” a car with a value greater than $5,000 must be appraised by a qualified appraiser, and you must obtain a written appraisal to claim your tax deduction.
4. Prepare the required documentation for your claim.
In order to file your tax deduction claim, you’ll need the proper documentation. These forms will generally be provided to you by the charity. With Hands of The Carpenter, for example, a tax receipt is provided right away. Other tax forms will follow later. Our team will get in touch with you once all documents are ready.
Once you receive your documentation from the charity, you’ll need to provide – at minimum – the following information:
- Owner’s full name
- VIN (Vehicle Identification Number)
- Donation date
- A statement describing any goods and services you may have received
5. Note that you might need additional forms to complete.
- Complete Section A if your deduction is between $501 – $5,000
- Complete Section B if your deduction is more than $5,000 (this will require you to obtain a written appraisal from a qualified appraiser)
If you need assistance, you can always contact our team. Our 18 years of experience in handling donated cars and sending them off to happy beneficiaries will help make filing your tax deductions easier.
Summary of Forms & Resources
- Tax Exempt Organization Search
- Used Car Guides – Fair Market Value Calculator
- IRS Resources
- Publication 561, Determining the Value of Donated Property
- Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes
- Schedule A (Form 1040 or 1040-SR), Itemized Deductions
- Form 8283, Noncash Charitable Contributions