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You probably heard it more than a dozen times from tv or radio commercials or read it from newspapers or magazines ads, Donate Car for Tax Credit but is it really that easy? Yes it’s true that you can get tax credit, but the big question is how much tax deduction can you get? Some people tend to get smaller than what they expected. Donating your car to charity can benefit you with a significant amount of tax savings if you will do proper planning and you’ll have all the proper documentations.
1. Make sure that you’re donating to a reputable charity, an IRS-approved 501(c)(3) organization.
2. According to the Internal Revenue Service (IRS), your deduction depends on how the charity uses your donation. If they sell your car (truck, boat, RV, or other vehicle), then your deduction will be the sales price. If they use it in other ways then you can use the car’s fair market value.
3. What is the car’s fair market value? The IRS suggests that you use a reputable used-car price guide such as the recent copy of the Kelley Blue Book to calculate your car’s fair market value. The private party prices are based on a vehicle’s make, model and overall condition.
4. Take note that there’s also a donate a car for tax credit rule, all taxpayer has a $500 threshold on vehicular gift. So even if the charity sells your car sells for $500 or less, still you can deduct $500 or your car’s fair market value, whichever is less.
5. Make sure that you keep a thorough list of paper trail. Most charities will report the sales price of your car to you on a form or a receipt, so make sure to have those documents.
6. Make sure to report the amount of your deduction. File all the forms necessary. If your deduction is greater than $5,000, you may also need a written appraisal as documentation.
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