How to Donate your Car for Maximum Tax Credit [Updated]
Are you planning to donate your car for a tax benefit?
Here is what you need to know!
Donating a car to your favorite charity can be a great idea when you show it in your charitable donation.
But, you need to plan smartly to get maximum tax savings out of your vehicle donation.
Here is the catch…
The Internal Revenue Service popularly known as IRS wants you to calculate your charitable tax deduction in 1 of 2 ways.
Tax deductions for cars or other vehicles are restricted to the sales price.
In rest of the cases, one can use his car’s fair market value.
Step 1: Know how much the charity sold your car for…
You can use your car’s selling price (the actual price that the charity sold your car for) as your deduction amount.
Here is an example:
Assume that your car sold out for $4,000 at auction.
In this case, your deduction amount is limited to $4,000, even though the fair market value of your car is $4,800.
In other cases, like charity sold it for individual or kept it for own use, etc then you are free to go and claim fair market value.
Step 2: Know your car’s fair market value…
The Internal Revenue Service(IRS) always recommends that you use a valid used car or old car price party to evaluate your tax deduction amount using fair market value.
Because it’s all about accurate pricing and max tax saving…
For instance, recent Kelly blue book from your nearest library and locate prices base on your car model and condition. Of course, you can also Google it online.
Step 3: Know your tax deduction & claim it…
Go ahead and claim the deduction on Schedule A ( line 17).
Here is the catch…
Itemize your car donation to claim a tax deduction.
As per Schedule A, overall expenses should be more than the standard deduction price for your filing.
Step 4: Know extra forms you’ll need…
Fill up form 8283 if your car selling price is over $500.
Note that, if your deduction amount is in between $501 and $5,000 then you should fill up Section A.
If your donation amount is greater than $5,000 then you should fill up Section B.
If your car sells for $500 or less you can claim a tax deduction for $500.