Reduce Taxes With Car Donations

If you are looking for a way to get ride of an old vehicle, you may want to consider a car donation.  To donate a car, you simply have to contact a car donation services and they take care of everything else.  Thus, donating your car to charity rather than selling it is more convenient and fast.  Moreover, you help those who are in need of assistance when you donate your car and benefit from it through tax breaks in return. The IRS allows a deduction to your taxes payable equivalent to the proceeds from your car donation.

Before you donate your car to charity you will probably want to know how much will your car donation tax deduction be.  The amount of your car donation tax deduction is covered by the 2005 revised federal tax legislation on car donations.  This legislation describes two possible amounts for your car donation tax deduction- the gross sales amount and the fair market value of your car.

Gross Sales Amount

Before the tax legislation was revised in 2005, the fair market value of a car donation was the amount used for the donor’s tax deduction.  However, the IRS found out that donors were claiming fair market values of donated cars based on the make and the model without considering the car’s condition.  Since the fair market value is the amount agreed upon by the donor and the car donation services, the donors usually considered the book value of the car as the fair market value without taking account of depreciation and the needed refurbishing.

Car donation services usually either refurbish donated cars first or sell them as is at auctions where the true fair market values of the cars are considered.  So if the cars were donated to them at a bloated fair market value, the amount that the car was sold for did not match this bloated value.  The 2005 car donation tax legislation revision corrects this error by allowing only the gross sales amount of the donated cars as the donor’s tax deduction.  

Fair Market Value

The legislation however, still allows that the fair market value of the donated car be used as the donor’s tax deduction provided that they meet certain conditions and paperwork.  

Car donation services do not always sell donated cars.  They may either use the car for their charitable causes or assign the car to a needy family or individual.  If the donated car is used this way by the car donation services, the revised car donation tax legislation allows that the fair market value of the car is used as the donor’s tax deduction.

The necessary paperwork that the IRS needs for the fair market value tax deduction is an acknowledgment receipt issued by the car donation services.  This paper must state that the car is used directly for their charitable causes, the donor’s tax identification number or social security number and the car’s identification number.  Moreover, the IRS may also require that the document contain a phrase restricting the donated car to charitable uses only and not to any future sale.

Donating a car and reducing your taxes is very convenient and easy.  There are already numerous car donation services online.  All you have to do is: call their toll-free number, fill out the application form, and wait for your car to be picked up.  But before that, you may want to check for a 501(c) (3) charity organization classification.  This way you can be sure that your donation goes to charity and be assured that your car donation tax deduction is valid.