How to Donate Your Car to Charity for a Tax Deduction

When it's time to part with an old vehicle, most people opt to trade it in or sell it privately. But if you're feeling generous, donating your car to charity can support a worthy cause and potentially net you a nice tax deduction. To ensure you get the maximum benefit, though, it's important to follow the proper steps and keep detailed records. Here's what you need to know.

Step 1: Find a Qualified Charity

To claim a tax deduction for your car donation, the charity you select must be recognized by the IRS as a 501(c)(3) organization. You can use the IRS's Tax Exempt Organization Search Tool to see if your charity of choice qualifies.

Keep in mind that churches, synagogues, temples, and mosques are automatically considered qualified organizations and do not need to apply for 501(c)(3) status. If you're unsure whether a religious organization can accept tax-deductible donations, you can call the IRS at (877) 829-5500 to check.

It's also worth doing some extra research if you're considering donating to a vehicle-specific charity. Some of these organizations have come under scrutiny for misleading advertising or having too-close ties with for-profit vendors. Checking sites like CharityWatch can help you find a reputable organization.

Step 2: Determine Your Car's Fair Market Value

The amount you can deduct for your donated vehicle is based on its fair market value (FMV). The IRS defines FMV as "the price a willing buyer would pay and a willing seller would accept for the car, when neither party is compelled to buy or sell and both parties have reasonable knowledge of the relevant facts."

To determine your car's FMV, you'll need to consider factors like:

• The car's year, make, model, and trim level
• Its mileage and overall condition
• The going price for similar vehicles in your area

Tools like Motorvero's Car Value Estimator can provide a ballpark figure based on your car's details. You can also check sites like Kelley Blue Book or NADA Guides. Just remember that the IRS will only allow you to claim the vehicle's FMV, not the inflated "suggested retail price" you might see on some pricing guides.

Step 3: Itemize Your Deductions

To claim a deduction for your car donation, you'll need to itemize on your tax return using Schedule A of Form 1040. The specific amount you can deduct depends on how the charity uses the vehicle:

• If the charity keeps and uses the car for its operations, you can deduct the car's full FMV on the date of the donation.
• If the charity sells the car, your deduction is limited to the actual sale price, even if it's less than your estimated FMV.
• If the charity spends money to prepare the car for sale (e.g., towing, reconditioning, auction fees), those costs can further lower your deduction amount.

There are also some overall limitations on vehicle donation deductions. For instance, your total charitable giving can't exceed 50% of your adjusted gross income for the year. And if your car donation deduction is over $500, you'll need to complete Section A of IRS Form 8283 and attach it to your return.

Navigating these rules can get tricky, so consult a tax professional if you're unsure how to proceed. They can help ensure you're following the guidelines to a T and maximizing your deduction.

Step 4: Keep Detailed Records

Regardless of your car's value or the charity you choose, it's crucial to keep thorough records of your donation. At a minimum, you'll want to document:

• The charity's name and address
• The date and location of your donation
• A detailed description of the vehicle, including make, model, year, condition, and mileage
• A copy of the car's title, showing the transfer from you to the charity

If you're claiming a deduction over $250, you'll also need a written acknowledgment from the charity stating one of the following:

• No goods or services were provided in exchange for the car (if that's the case)
• A description and good-faith estimate of any goods or services provided to you as a donor
• A statement that the only benefit you received was an intangible religious benefit (if you made the donation to a religious organization)

For vehicle donations over $500, you'll need to attach that acknowledgment to your tax return along with IRS Form 8283. And if you're claiming a deduction over $5,000, you'll also need a written appraisal from a qualified appraiser to submit with your return.

The Bottom Line on Donating Your Car for a Tax Deduction

Donating a car can be a win-win, supporting a cause you care about and lowering your tax bill in the process. But to reap the maximum deduction, you'll need to follow the IRS's rules for vehicle donations closely, from choosing a qualified charity to keeping detailed records.

If the tax benefits are your main motivation for donating, be sure to discuss your specific situation with an accountant or tax preparer. They can walk you through the requirements and help you decide if donating your car makes financial sense. And of course, make sure the charity you choose is one you'd be proud to support, tax deduction or not.

One final note: If you want to support a charity but aren't ready to part with your car, consider selling it through Motorvero instead. We'll give you a guaranteed online offer and pick up the vehicle for free, leaving you with cash in hand to donate (or keep) as you see fit. You'll miss out on the tax deduction, but you'll have the flexibility to give back on your own terms.