How Do Tax Deductions Work When Donating A Car?

 To take advantage of the deduction that’s available when you hand over an old car to charity, you must:

Itemize Deductions

You’ll need to itemize deductions to get a tax break for your contribution. If, however, you claim the standard deduction—which nearly 90% of taxpayers do—then donating your car won’t benefit you at tax time.

Gather the Right Documentation

Your write-off amount and the documentation you need will depend on the value of the vehicle and what the charity will do with it. The organization may use the car in its operations or sell it and keep the proceeds.

Regardless of how the charity uses the vehicle, if you plan on claiming that the car is worth more than $500, you must get a written acknowledgment of the donation. That acknowledgment must contain:

• Your name and Social Security number or taxpayer identification number
• The car’s vehicle identification number (VIN)
• The date of the contribution
• Confirmation that the charity didn’t provide any goods or services in exchange for the donation—or an estimate of the value of any goods and services that were provided

If the charity sells your vehicle, then your deduction is limited to the proceeds from the sale — which may be less than you believe the car is worth.

For example, say you donate a car with an estimated value of $3,000 to a charity, but the charity sells the car for $2,000. In that case, your deduction is capped at $2,000.

Once the car is sold, the charity should send you Form 1098-C, “Contributions of Motor Vehicles, Boats, and Airplanes,” within 30 days. The form should contain:

• A statement certifying that the charity sold the car in an  “arm’s length transaction between unrelated parties.” In other words, the charity didn’t sell it to an employee or another related party at a discount
• The date the vehicle was sold
• The gross proceeds received from the sale

However, if the charity intends to use the car in its operations, you can deduct the car’s fair market value on the date you donated it. In that case, the written acknowledgment from the charity should confirm that the organization plans to use the vehicle and describe its intended use.

You’ll need to attach Form 1098-C or any other written acknowledgment, and Form 8283, “Noncash Charitable Contributions,” to your tax return when you file it. If you use any of today’s best online tax software, the program should fill out the required forms for you automatically after you answer questions about your donation.

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How To Vet Car Charities

When donating your car to charity, take precautions to avoid being scammed or contributing to a questionable charity. If you donate your vehicle to an organization that isn’t qualified by the IRS to receive tax-exempt donations, or if you don’t get the proper paperwork, you won’t be able to claim a tax deduction.

Ensure the organization is qualified to receive tax-deductible donations

Most charitable organizations that are qualified to receive tax-deductible donations have a 501(c)(3) status with the IRS.

If you’re not sure whether an organization qualifies, search for the charity in the IRS Tax Exempt Organization Search Tool, or call the IRS at 877-829-5500 and have the charity’s name and address handy.

Donate to efficient and transparent charities

Even legitimate charitable organizations may be vague about how they use donations, or might use only a small percentage of contributions on charitable programs.

For example, one controversial car donation program is the Kars4Kids program, which runs commercials on radio and TV nationwide.

According to CharityWatch, an organization that evaluates charities based on efficiency, governance and transparency, while Kars4Kids is a legitimate 501(c)(3) charity, it deceives potential donors by failing to inform them that it serves only children of a particular faith, and primarily in New York and New Jersey.

CharityWatch also reported that Kars4Kids spent more on overhead than charitable programs in 2015—a red flag suggesting the organization didn’t use donations efficiently. But a Kars4Kids report on its operations in 2020 shows most spending (60%) was devoted to its programs that year.

Before selecting an organization to donate to, you might want to look the charity up on CharityWatch or a similar nonprofit database to be certain it shares your values.

How To Donate Your Car to Charity

Many well-known and reputable charitable organizations accept car donations, including Habitat for Humanity, Disabled American Veterans and the Make-A-Wish Foundation.

Local high schools and vocational schools may also take donated vehicles to use in auto shop classes.
The easiest way to go about donating your car is to call the organization or fill out an online donation form. The charity will arrange to pick up the car or have you drop it off at a specific location. You’ll be given a receipt to use when you prepare your tax return.

You should hold on to that receipt. You’ll need to keep it with your records for at least three years to prove your donation.