At the end of the year you will be inundated with commercials to donate a vehicle to charity. While it is one of the biggest contributions a taxpayer can make, if not done carefully, the tax deduction of a donated vehicle could be a lot lower than you think.
When you donate a vehicle, the value of your donation is either the fair market value of your vehicle when you donate it OR the value received by the charitable organization for your donation. Unfortunately, you do not choose the value of the donated vehicle.
What you should do
Select the organization wisely. Select an organization that will either use the vehicle themselves or will use it to train others. Examples of qualified organizations include groups that help single mothers obtain transportation to and from work or use the vehicles to deliver meals to seniors. Other organizations teach auto repair and body shop work to the unemployed. The cars then are given to other non-profits or needy folks. From the IRS perspective, a qualifying charitable use either;
Special Caution: Be aware of national advertisers like KARZ4KIDS..they almost always limit your donation amount by what they can resell your car for...often below the fair market value. And before donating, know how, and be pleased with how, the funds are to be used.
Research the fair market value: Prior to donating your vehicle go to a reputable source and estimate the value of your vehicle. Online resources like Edmunds.com and kbb.com (Kelley Blue Book) are two reliable sites to do this. Also make a copy of your title and take pictures of your car prior to donating it to the charity to help support your fair market value claim.
Obtain the proper tax form. When donating your vehicle make sure the organization gives you a proper Form 1098-C at the time you provide your vehicle. Double check the value assigned to your donation form to ensure it meets or exceeds the estimated fair market value of your donation. Remember, if your valuation exceeds $5,000 you will need an approved appraisal.
Sell the vehicle and donate the cash: If you cannot find a charitable organization that will allow you to maximize your fair market value deduction, consider selling the vehicle and then donating the proceeds. There is a potential problem with this approach, however. Take care that you do not create an unplanned taxable capital gain with the transaction.
Note: These rules apply to other vehicle donations as well. This includes motorcycles, trucks, vans, buses, RV's and other transportation vehicles.
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