When Does It Make Sense To Donate My Car For Tax Purposes?
‘When Does It Make Sense To Donate My Car For Tax Purposes?’
Donating an old vehicle to charity provides numerous benefits to both receivers and givers alike. Disadvantaged individuals finally get the support they need while donors not only get rid of their unwanted vehicles but receive hefty tax write-offs as well.
However, since there are certain conditions when car donations are most ideal, a donor may be prompted to ask: “When does it make sense to donate my car for tax purposes?”
5 Conditions for Donating a Vehicle to Charity
There are at least five conditions when donating your vehicle to a charity is the best course of action to take. All five conditions need not be present at the same time. However, even just two or three of these circumstances happening at the same time would already be enough ground for you to consider turning over your vehicle to a charity whose mission you wholeheartedly support. Here are those conditions:
1. When you’re looking for a way to slash your tax bill
If you’re seeking ways to reduce your taxable income in the upcoming tax-filing season, a good option is to claim tax write-offs based on the value of your charitable contributions. A car donation to an IRS-certified 501c3 nonprofit organization will earn you a nice tax deduction.
2. When you’re fed up with your car’s unending series of repairs
When you’re plunking money faster on car repairs than you could earn it, it’s time to stop such senseless expenditures.
3. When your clunker is just collecting dust in your garage.
It makes no sense to keep an old vehicle you no longer use in your garage when you can use the space for more worthwhile purposes such as making it the home of the brand-new car you’re planning to buy.
4. When you’re too busy to sell your old car yourself
Although selling your old vehicle will earn you money right after the sale unlike when you donate it, the process will take up so much of your time, effort, and money and even put you in a risky situation. Selling your car yourself means you have to place ads, show your vehicle to prospective buyers, talk and haggle with them, deal with the paperwork, spend for repairs and refurbishing to make your car look sellable, etc.
5. When you feel the need to help others
The best reason for donating a car to charity is when you feel the urge to help the less fortunate people in your community. Nothing beats the feeling of satisfaction you’d feel once you extend a helping hand to the needy people around you, knowing that you’ve done something wonderful in your life that will make a difference in the lives of these people.
How a Car Donation Tax Deduction Works
When your primary consideration in donating your car is to get a tax deduction, you have to know the conditions that will warrant such a tax incentive. First of all, you must make sure that you’ll be donating your vehicle to an IRS-accredited nonprofit with a 501(c)3 status. You can determine a charity’s qualification by consulting the IRS’ Tax Exempt Organizations Search tool.
Once your car has been auctioned off, the charity will mail you an IRS Tax Form 1098-C. The form will provide you details of the amount that you can deduct from your taxable income.
Additionally, you will also receive a written acknowledgment from the charity within 30 days of the vehicle sale. The document should include:
- The vehicle’s gross selling price
- The vehicle’s year, make, model, and VIN
- A statement confirming that you did not receive any goods or services in exchange for your donation
- A statement confirming that the vehicle was sold between two unrelated parties
How Much You Can Get from Your Auto Donation
If your vehicle sells for less than $500, you can claim as your tax deduction either your vehicle’s selling price or its fair market value not exceeding $500. However, if your vehicle was sold for more than $500, you can only claim the exact amount of its selling price as your tax deduction.
In case you’re wondering what fair market value is, it’s the selling price of an item agreed upon by sellers and buyers. The value diminishes as a vehicle gets old and suffers wear and tear. While you can estimate