Car Donation Tax Deductions 2012/2013
Official IRS Tax Rules For Donors
So you’ve decided to finally give that old junker of yours away to a charity. Good for you!
Your first thought is that, while you’re giving up a car, what you’re getting in return is a nice, big car donation tax deduction that will save you money come April.
But before you go counting on cutting out a big chunk of your income tax, you need to make sure that you’ve crossed all your T’s and dotted all your I’s.
After all, every tax deduction has rules and paperwork, and donating a car to charity is no exception to this rule.
In order to claim your IRS tax credit, you must understand and follow the specific tax rules otherwise your deduction will be rejected.
1. How To Pick The Right Charity
Your first step is to pick a charity to give your car to.
You need to call the charity up and make sure that they’ll accept your car if you choose to donate it to them. Most importantly, you need to ensure the charity is a viable option that counts for a tax deduction.
Qualifying charities must be officially registered Section (501)(c)(3) “Not For Profit” Organizations, but if you’re not sure about your choice of charity then simply visit www.irs.gov/charities and flip through IRS Publication 78 where you will find a list of charities that qualify.
2. Qualifying For a Car Donation Tax Deduction
Once you know where you want to donate your car, you still have to make sure that you can take a tax deduction according to IRS rules.
For instance, you cannot take a car donation tax deduction that’s more than 50% of your gross income, which means you can’t claim a $6,000 donation if you only made $10,000 in a given year.
If you’re not sure whether or not you can use the tax deduction you would receive from your car donation, check IRS publication 526 on Charitable Contributions, which lists all of the rules you have to follow.
You can find this particular publication online, or you can call (800) 829-3676 to get the information you need.
3. How Much Tax Can You Deduct?
Ok, so you qualify for the deduction and you’ve found a charity that can accept your vehicle.
You have to remember that most vehicle deductions come from cars, trucks, motorcycles or anything else that’s meant to be driven on a public street. You can also donate boats and planes though.
You have to donate personal vehicles too; for instance car dealers or salesmen can’t donate unsold cars and then write them off against taxes according to the rules.
You can, of course, donate a non-qualifying item to any charity and in such cases, you should consult IRS Publication 526 on contributions of property.
When you donate your vehicle you can write off different amounts depending on what the charity does with your car. Usually, donated vehicles are auctioned and your tax deduction will be limited to the amount of the sales value.
There are some exceptions, however, but no matter what you have to get a written acknowledgment from the organization. The written acknowledgment serves as an official receipt for the IRS and confirms what has happened to your vehicle.
For information on other ‘noncash charitable donations’, click here. Additionally, read our separate article that asks whether a car donation is right for you or not.
3.1. Claiming Tax Deductions Over $500
All written acknowledgments for claims over $500 need to include the following information for the IRS to respect your car donation tax write off:
- Your name and tax payer identification information
- Vehicle identification number (VIN)
- Date of contribution
The charity must also then provide:
- a statement that no goods or services were given for the donation, or
- a description and estimate of the goods and services, if any, provided in return for the donation, or
- a statement that all goods and services provided for the donation were of an intangible, religious nature, if that was the case
In any event, the IRS states that if the charity does not provide all of the necessary information, then tax deductions in excess of $500 will not be allowed.
3.1.1. Can You Deduct More Than The Sale Price?
The IRS refers to the sales price of your vehicle as the ‘gross proceeds’. As stated above, your tax break or credit is limited by this value.
However, there are some exceptions to this rule which the IRS refers to as ‘exceptions to gross proceeds limits’. Put another way, these exceptions provide for the possibility of claiming an amount that is higher than the vehicle sale price.
In certain cases, therefore, you may be able to deduct the ‘fair market value’ or FMV of your car at the time of its sale.
We have provided a separate page on how to maximize your car donation tax deduction where we fully explain these situations.
3.1.2. Get a Receipt For Donations Over $500
If you are claiming the amount of the gross proceeds of the sale of your vehicle then you have to get a written acknowledgment from the charity within 30 days of the sale.
If your vehicle donation is one of the special exceptions that allows you to ignore the gross sale amount rule then you need to get a written acknowledgment from the charity on the date of your donation.
The charity can submit to you either Form 1098-C, Contributions of Motor Vehicles, Boats and Airplanes or make a separate statement containing all the necessary information above.
The information that you receive from the charity as well as Form 8283, Noncash Charitable Contributions, should be attached to your tax return. Please note that if you do not itemize your donation in this way, you will not qualify for your car donation tax credit.
3.2. Claiming Tax Deductions Under $500
If you claim more than $250, but less than $500 as the value of your vehicle then your life is a little easier.
In this case your written acknowledgment for your vehicle donation has to include the name of the charity you gave your vehicle to, a description (not a value, just the things like make, model, condition, etc.) of your vehicle, and one of the following:
- Written statement that no goods or services were given to you for this donation
- A good faith estimate of the value of goods and services that were given in exchange for this vehicle donation
- A statement that all goods and services provided to you in exchange for your vehicle donation were of a religious and therefore intangible nature
3.2.1. Get a Receipt For Donations Under $500
When you have one of these smaller donation claims you have to provide written acknowledgment in one of two ways.
Either you have to have the written acknowledgment before you file your return, or before the final date of a return that’s been given extensions, whichever applies to you.
Do not send in your acknowledgment with your taxes; keep it in your files so that you can back up the donation if the IRS ever asks about it.
3.3. Figuring Out What Your Donation is Worth
If you meet one of the exceptions for gross value of a sale then you need to find the fair market value (FMV) of your vehicle.
Your fair market value can be found in a pricing guide listing your vehicle by make, model and year (see our FAQs – How Do I Value My Vehicle?).
You have to find the value for the exact same vehicle as you’re donating with the same or similar accessories, taking into account is age, general condition and mileage.
Additionally, be sure that your fair market value doesn’t exceed the value of a private sale.
If you’re having trouble figuring out exactly what your donation is worth then see IRS Publication 561, Determining The Value of Donated Property, which gives instructions on finding the values of donated property.
4. Keeping Records and What To File
Claiming deductions always comes with an additional land slide of paperwork.
For instance, if your vehicle deduction is for more than $500 you need to attach a the written acknowledgment from the charity to your tax forms in order for the IRS to verify your deduction.
Keep a copy for your records, just in case the original gets lost in red tape.
Note that there may be additional filing requirements depending upon the amount you are claiming. We have itemized these in the following sections.
4.1. How To Complete IRS Form 8283
IRS form 8283 must be completed and submitted with your tax return if you want to claim a non-cash charitable donation. Your vehicle clearly falls into that category.
Tax Deductions Between $500 and $5,000
If your vehicle tax deduction is more than $500 but less than $5,000 then you have to fill out the top portion of Form 8283, which is available at public libraries or online at IRS.gov.
Attach this to your Form 1040 when filing your taxes.
Tax Deductions Greater Than $5,000
On the other hand, if your vehicle deduction is more than $5,000 then you have to fill out section B on Form 8283.
You will have to include the signature of an official from the charity you donated to. Lastly, if your vehicle is worth over $5,000 and it isn’t subject to the ‘gross proceeds rule’ that’s mentioned above then you’re also going to have to include a written appraisal of your vehicle.
4.2. Appraisals For Vehicles Over $5,000
If you need a written appraisal of your vehicle then you must obtain it from a qualified vehicle appraiser. For the rules and regulations that govern this, see IRS Publication 561, Determining The Value of Donated Property.
Get Appraised Before You Donate
Additionally, the appraisal has to be done within 60 days before you donate the vehicle. This ensures that you don’t get it appraised and then once the value has fallen further you try to claim the showroom floor price.
Your appraisal must be completed before the due date for any tax forms, including extensions in the current tax year.
Also, if the charity sells your vehicle within 3 years it will have to fill out Form 8282, which will name you as the donor and your vehicle as the one sold.
You don’t have to do anything here, but the charity you gave your vehicle to will have to provide you with a copy of this form once it has filed.
5. Some Important IRS Definitions
In order to follow all the instructions, it’s important to know what certain terms mean.
Below are some of the definitions you should reference if you need to.
Material Improvement
A material improvement is any repair or addition to a vehicle that causes a significant jump in its market value.
So if the charity swaps out the engine for a newer, better functioning one, that is a ‘material improvement’.
Significant Intervening Use
A significant intervening use is when the charity intends to use the vehicle that was donated for its own ends rather than putting it up on the market.
Say that you donated a Chevy Malibu, and that became the company car for charity management that travelled from store to store for several years.
That’s an example of ‘significant intervening use’. Driving the car to the repair shop or to the auction block is not.
6. Avoiding Liability After Donating Your Car
Liability is the legal term for when something is your fault.
And in order to make sure that nothing that’s done with your donated vehicle gets the blame pointed at you, there are a few things you should do.
Ensure The Title Has Been Transferred
Number one is that you should fill out a transfer of title form with your Department of Motor Vehicles and list the vehicle as donated.
Additionally, before you hand your car and keys over to the charity in question you should remove your license plates as well as anything else that’s yours that you don’t want to give to the charity.
Always check with your local representative to be sure you’re following all the state laws regarding vehicle donation so that nothing comes back around to bite you after you tried to be a good person.
7. Getting Assistance In Donating Your Car
If you’ve started to suspect that donating a car to charity and getting your tax deduction credit is a complicated process, you’re right it can be.
However, there are resources available to help you along the way. After all, by law, there are certain things that charities, the state government and the IRS itself have to do in order to help you through the process.
These things we have listed below in their own sections.
7.1. Getting Help From Your Charity
Charities want people to help them and to give donations. They also want to be compliant with the law.
So a charity that accepts vehicle donations has to make its application for tax exemption, its determination letter and its most recent Form 990 (annual information returns), available to any member of the public that wants to give them a look.
This can make things easier for you when you’re shopping around looking for a charity to donate to, and you want to be sure that the charity in question meets the qualifications for a tax deductible donation.
7.1.2. Getting Help From Your State Government
As a result if you want to get the low down on charities and how donations to and through them work you should get hold of a state charity official.
Conveniently enough you can find a complete list of these state charity officials at www.nasconet.org, which is the website for the National Association of State Charity Officials.
So whether you just need a little help picking a charity, or you want some insider information on what you need to do to make your vehicle donation process go smoothly, these are the individuals to talk to and they can guide you to all the resources and aids that you need to complete your transaction in a timely, efficient manner.
7.1.3. Getting Help From The IRS
No one likes paying their taxes, but the IRS doesn’t like making more work for itself than it has to either.
As such the agency is more than willing to answer your tax questions and work with you to iron our your tax returns and all your deductions until they’re crisp and perfect.
All of the publications put out by the IRS are available at the agency’s website, IRS.gov.
The IRS also makes all application forms and 990 forms from charities available to the public, and if you want to see one for a given charity all you have to do is walk in and ask to see it, or make a request via phone or Internet.
And if you require assistance with your tax forms call and make an appointment with your local IRS office.
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