What Counts As A Donation?
While giving your car for free to a friend or family member is a perfectly charitable thing to do, by the IRS’s account, it doesn’t actually count as a donation of your car. So, what does? For the purposes of tax completion, your donation must go toward a certified 501(c)3 organization.
The IRS has a document on their website known as Publication 78 that contains all registered 501(c)3 charities in the United States. If your charity of choice doesn’t appear on that list, any donation made to them won’t be tax deductible.
It’s also important to know that donating your car doesn’t have to involve the physical donation of your vehicle to a charity. You also have the option to sell your car and donate the proceeds to a charity. This alternate method of donating your car for taxes allows you more control over the size of the tax credit you actually get, which will be explained more in the next sections.
The Donation Process
Preparation to donate your car starts off more or less the same as preparation to sell it. The primary difference is that the research you do at this stage matters and will need to be documented for your taxes. Your first steps will be to obtain a dated estimate of your car’s value and to select a charity to donate to.
Beyond having a 501(c)3 tax status, there are some practices you may want to look for when selecting your charity to make sure your donation does the most possible good. First, find an organization that’s clear about keeping administrative costs at or below 15% of their proceeds. That other 85% should be going to the cause you support!
If you’re choosing to donate your actual vehicle, the charity may rely on an intermediary service to help facilitate the donation and move your vehicle. If so, make sure the charity is keeping at least 75% of the proceeds from these transactions.
With a charity selected, it’ll be time to get an estimate of your car’s value. This is because the amount of your tax deduction is dependent on your car’s value at the time of donation and what happens to it after it’s donated. Most cars being donated are older or in less than ideal condition, meaning their value will be under $5,000.
For cars in this category in running condition, Kelley Blue Book or a similar resource should be fine. If you’re donating a junk car, an auction website may be a more appropriate and accurate way to gauge your car’s worth. Save a dated printout of this estimate for your taxes. If your car is valued at over $5,000, you’ll need a written appraisal of your car.
When you donate your car, you’ll receive documentation from the charity. Make sure this documentation itemizes your donation and includes the charity’s name, your name and tax ID number, your contribution, the VIN of the donated car, the date of donation, and verification that you didn’t receive compensation for your donation. Make sure the name of the charity is on the title when you transfer ownership of the car.
Our expert evaluators can help you get an accurate estimate for your cars value, FAST!
You’ll also want to keep in touch with the charity. If your car sells after donation, you’ll receive Form 1098-C that specifies how much your car sells for, which will be the amount you’re able to claim on your taxes.
Should you sell your car privately or junk it and donate the proceeds, you’ll need all of the same documents except 1098-C. Instead, keep a receipt from your sale so the exact price you sold your car for can stand in.
Writing Off Your Donation
No matter how you made your donation, you’ll need to fill out Form 1040 when you file your taxes to itemize your deductions. Remember that your deductions can’t meet or exceed 50% of your income. Under the section labeled “Gifts to Charity,” you’ll itemize the donation of your car using the paperwork discussed above.
If the charity sold your car, the amount of your deduction will be the amount it was sold for, even if this amount is lower than the fair market value for your vehicle. The only exception to this is if the car sells for under $500, in which case you may still claim $500 as your deduction to your total income. That means at a minimum, you’ll be able to claim $500 for your credit.
If the charity didn’t sell your car, you’ll use the dated paperwork verifying your car’s fair market value. That amount will be the amount you claim as your donation.
If you sold or junked your car, you’ll put the amount you received as compensation in that sale.
Under Form 8285 of the Gifts to Charity section, you’ll find a “section A” and a “section B” that distinguish between cars valued or sold for $501-$5K, and cars that sell for over $5K respectively. If your car was worth more than $5,000, you’ll need to fill out section B and attach the written appraisal of your car you received prior to donation.
That’s all it takes! Though donating your car for the sake of your taxes requires a bit more paperwork than simply selling it, that donation tax credit can make a difference when springtime rolls around.
When Does Donating NOT Impact Your Taxes?
When doing your taxes, it’s important to figure out if itemizing your donations — including a car donation — makes more sense than taking the standard deduction of up to $12,400 for single filers.
If you know you’ve made less than $12,400 worth of donations in a given year and you qualify for the standard deduction, then it typically makes much more financial sense to take the standard deduction and not bother itemizing donations like your car.
Does that mean you shouldn’t donate to charity? No! But be aware that unless you plan on making multiple donations or donating an exceptionally high-value car, you may not financially benefit from donating your vehicle come tax season.
For An Easier Way, Sell Your Car With CarBrain
If you’re looking for the easiest way to donate your car, consider selling it first with CarBrain. CarBrain will offer you the best price for your less than perfect vehicle, ensuring that you get cash straight into your pocket rather than itemizing deductions and waiting for a tax refund.
As a bonus, you can have your car sold and picked up for free in just a day. We offer fast, free towing in 24-48 business hours after you accept your offer, and we’ll pay you on the spot for your car when we arrive to pick it up!
It takes just 90 seconds to get an offer for your vehicle, and less than two business days to have payment in your hand. No need to wait till tax season — see the monetary benefit from junking your car now! Save time, energy, and money on your taxes with CarBrain today!
