Here's a piece I found from USA Today that details how to get the maximum tax deduction for a donated car. The summary:
Under a provision in the law, you can deduct the fair market value of a donated vehicle if the charity fixes it up and gives it to a low-income individual or sells it to a needy person at a low cost. Only a handful of charities operate these programs, and not all used cars meet their standards.
In most cases, the charity will simply sell the car at auction, which means your deduction will be limited to the proceeds from the sale.
So here's what you want to have happen:
1. You donate the car.
2. The charity gives it away, uses it for its own purposes, or sells it for a really low price (far below fair market value.)
3. If any of these happens, you can deduct the "fair market value" which you can usually find from Kelly Blue Book. This amount will almost always be higher (and thus a better tax deduction for you) than option #2.
Option #2 is that the charity sells the vehicle (usually at below fair market value) and pockets the cash. You can then claim the amount they sold the car for.
Here are a couple examples:
- Let's say you have a car with a fair market value of $4,000. If the charity keeps the car, gives it to a needy person, or sells it to them at a really low price (let's say $500), then you get a deduction of $4,000. (By the way, I'm unclear what exactly constitutes a "low cost," so you'll want to check into those specifics ahead of time.)
- The other option is that the charity just wants the cash, so they sell it to someone for $3,200. You can claim a $3,200 deduction.
We donated two cars a few years ago under the old law -- where you could deduct the fair market value no matter what the charity did with the car. But before we donate our next car, I'll confirm with the charity that they will give it away, use it for its own purposes, or sell it for a really low price -- just to make sure I can take the full deduction.
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