Clearing Clutter While Doing Good
Donating an unused or old car to charity is a win-win situation. You get a tax deduction and free up garage space or remove an unused car from your property while helping a charitable cause that depends on donated vehicles. Navigating the intricate tax rules around car donations can be tricky.
Here’s what you need to know about getting the maximum tax deduction for your charitable vehicle donation.
Overcoming the Standard Deduction Hurdle
The standard deduction significantly reduced taxes for most filers after the 2018 tax law changes. For 2023, the standard deduction amounts are $27,700 for married couples filing jointly and $13,850 for single filers. So unless your total itemized deductions exceed the standard deduction amount you qualify for, donating a car won’t save you anything on your taxes.
To determine if you can claim a deduction, add up your expected itemized deductions for the year, including medical expenses, charitable gifts, state and local taxes paid, home mortgage interest, and other miscellaneous deductions. If your total itemized deductions estimate clears the standard deduction hurdle for your filing status, donating a used car or vehicle to charity could provide you with additional tax savings.
Determining the Deductible Value of Your Donated Vehicle
The deductible value you can claim on your taxes depends on what the receiving charity does with the donated car. If the charity sells your car, your deduction is limited to the actual sale price they receive for the vehicle. To find out what your vehicle sold for, wait for the charity to send you Form 1098-C documenting the sale price. The form will arrive by tax time.
If the charity uses or significantly improves your donated vehicle instead of selling it, you can deduct the vehicle’s fair market value on the date of the donation. Check reputable pricing guides like Kelley Blue Book or Edmunds to estimate your vehicle’s fair market value on the donation date. This fair market value is your maximum tax deduction as long as it exceeds $500. If your vehicle is valued at under $500, your deduction is limited to $500 regardless of the actual value.
For donations valued over $5,000, you must attach a professional appraisal for the vehicle to Form 8283 Noncash Charitable Contributions when filing your tax return. The appraisal from a qualified expert substantiates your deduction amount.
Picking a Reputable Charity and Donating Your Car
Contact charities you are considering ahead of time to confirm they have an existing vehicle donation program and are able to accept your car donation. Many well-known charities like Habitat for Humanity, the Salvation Army, The Newgate School, Goodwill, and others have established car donation programs.
To complete the vehicle donation process, make sure to obtain proper written acknowledgment documentation from the charity with your name, the vehicle identification number (VIN), the date of donation, and a description of the car. This paperwork will be needed when you file taxes.
Weighing Potential Tax Deduction Savings vs. Preparation Hassle
Get quotes from charities on towing costs beforehand if not free. Make sure to research the deductible value so there are no surprises at tax time. For some people, these steps outweigh the tax benefit.
If you’re able to secure a sizeable deduction by donating a higher-value car, it can be a big tax win and a great way to uphold philanthropic values. Just be sure to plan ahead, research deductible values, and pick the right charity to smoothly maximize your tax benefits.
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