Some choose to donate a used vehicle to a charity of their choice. This is an admirable decision, and one that may allow a charitable tax deduction.
Here are 7 tips to keep in mind:
1. Select the right charity
You need to make certain that your charity is a qualified organization. In other words, the IRS should recognize your charity as a non-profit entity. If the charity is not identified, you will not be able to take a deduction.
To check the standing of your charity, you might first look at IRS Publication 78, Cumulative List of Organizations, an annual listing of recognized charities. Since not all charities are listed here, if you do not see the one you wish to donate to, you may also call the IRS Customer Account Services division for Tax Exempt and Government Entities, toll free at (877) 829-5500.
2. Itemize your deductions
Donations to charity are listed on a Schedule A, Itemized Deductions. Some may choose to itemize their deductions in lieu of taking a standard deduction. The benefit of itemizing is that you may be able to deduct a larger amount from your taxable income.
Donations to charity will not exceed your standard deduction amount on their own. Therefore, check to see if your other qualified itemized deductions, such as mortgage interest paid, real estate taxes, state taxes, medical expenses, etc., are high enough without factoring in any charitable donations.
3. Observe the deductable limit
You must take into account certain limitations on charitable contribution deductions. For example, your deduction cannot exceed 50% of your adjusted gross income. For detailed information on deductable limitations, see IRS Publication 526, Charitable Contributions.
4. Make sure your vehicle qualifies
A vehicle that can be donated is one that was manufactured for use on public roads and highways. Boats and airplanes can also be donated, but check with the individual charity to see if they have the ability to accept them.
A vehicle held in an inventory for sale to other customers, such as those found in a car dealership or auction lot, do not qualify.
5. Deduct the right amount
Generally, the allowable deduction amount for a vehicle contributed to a charity depends upon what the charity does with the vehicle. Charities typically look to sell the vehicles that are donated to them. If the charity sells the vehicle, your deduction is likely limited to the gross proceeds from the sale.
Check with your charity regarding whether you can take the estimated fair market value of the vehicle as the deduction, or the amount that they may sell the vehicle for.
6. Get a written acknowledgement
In order to take a deduction, the charity must provide you with a written acknowledgment letter that contains the following elements:
Your name and Taxpayer Identification Number
The vehicle identification number
The date of the contribution
A description and a good faith estimate of the value of the vehicle
If the charity sells your vehicle, they should also provide you with additional information regarding the sale.
7. Record and report the deduction correctly
If you are deducting more than $500, you must attach to your return the written acknowledgment you received from your charity.
If the deduction you are claiming for the donated vehicle is greater than $500, but less than $5,000, you must complete Section A of Form 8283, Noncash Charitable Contributions, and attach it to your Form 1040.
If the deduction you are claiming is greater than $5,000, you must complete Section B of Form 8283; this must also include the signature of an authorized official representing the charity. Additionally, if the deduction is over $5,000 you must get and attach a written appraisal of your vehicle from a qualified vehicle appraiser.
For additional information, see Publication 4303, A Donor’s Guide to Car Donations. If you are a charity and have questions regarding vehicle donations, see Publication 4302, A Charity’s Guide to Vehicle Donations.