What You Need to Know About Taxes After Donating Your Car
There are many benefits you can receive after donating a car. Along with knowing you’ve helped another person, you will also be eligible to receive a tax deduction. If you are interested in receiving a tax deduction after donating your car, you will need to do some homework in order to get the deduction.
Here are some tasks you will need to complete to receive your tax deduction.
Find a Charity
First, find one or several possible charities where you could donate your vehicle. Ask coworkers, friends, family, and neighbors, or you might try your favorite mechanic for a reference. Be sure to search online, too.
Once you have found the name of a charity, look at its website. Then call the charity and ask for the transportation manager. Tell him or her about the vehicle you wish to donate, and ask how the charity will use your vehicle. The use is the key to learning what deductions you can expect.
Determine the Value of Your Vehicle
If your car is worth more than $500, the value of your car will depend on what your chosen charity plans to do with the vehicle. However, you can expect a minimum deduction of $500 when you donate any vehicle.
If a charity plans to sell your donated vehicle, then your deduction is the gross proceeds the charity will make from the sale. Once a charity sells your car, they will send you the receipt of the purchase, indicating the amount you can claim on your deduction. This receipt must contain the following information:
- The gross proceeds from the sale
- The date the car sold
- A statement that says that your deduction can’t exceed the gross proceeds
- A statement that says the car was sold between unrelated parties in an arm’s length transaction
Your chosen charity must provide you with the receipt and statements within 30 days after the car sold.
If your chosen charity doesn’t sell donated cars as part of its mission, you can use your car’s fair market value. You will use this same method to value your car if the charity donates your car for less than it’s worth or intends to use your vehicle. If your car qualifies under one of these circumstances, you will need a statement from your chosen charity verifying the use of your car.
Keep in mind that you are responsible to provide documentation if the IRS decides to audit your donation.
Complete Necessary Paperwork
One of the most common situations that the IRS chooses to audit is no-cash donations, which are donations that don’t involve giving money. Donors should keep detailed documentation as evidence after they donate a car.
Every donor will need to document the following information:
- The name and address of the chosen charity
- The date the vehicle was donated
- A description of the vehicle
- An acknowledgement from the charity
In addition to this documentation, people who donate cars that are worth more than $500 also need to fill out Form 8283, Section A. If a car is worth more than $5,000, the donor needs to fill out Form 8283, Section B. Cars that are worth more than $5,000 and meet one of the exceptions listed above will also need a written appraisal.
Transfer the Title
The IRS usually recommends that donors personally transfer the title of car to the charity to avoid any confusion in the future. Most states require an individual to fill out a form through the state’s department of motor vehicles. This department will provide the donor with a statement that proves that the vehicle was donated.
Before you give your car to the charity, remove the license plate to avoid any potential liabilities. Also, make a copy of the car’s title for your records, and take pictures of your car before the donation.
Once you are ready to donate your car, ask the charity you’ve selected if they offer a towing or pickup service. If not, consider driving your car to the charity. You can help the charity save money on the donation by avoiding pickup or towing services.
If you need assistance donating your car, the IRS does provide help. Visit www.irs.gov for more information regarding vehicle donation. Most charities also provide assistance to donors. Consult the charity you’ve selected if you have further questions about donating your vehicle.