Donating an old or used vehicle to charity is a win-win notion.
You win simply because you not only get rid of a clunker for which you pay registration and insurance fees (and also, property tax if in any case you are living in a state like Virginia), but you also legally earn the right to deduct it from your income tax.
On the other hand, the charity also wins because it actually gets clear title to an asset that they can either use it for their daily operations or choose to sell it to create revenue
Deducting the overall value of a donated vehicle was very simple and easy years ago when most individuals simply deducted some kind of "fair sales value" of the vehicle from their income taxes, irrespective of what the charity later did with the vehicle.
But all that has since changed. Today, the IRS and the U.S. Department of Treasury have more strict requirements for deduction, in acquiescence with AJCA (The American Jobs Creation Act). If in any case you don’t comply with all these regulations, then you might end up getting an IRS audit. So it really pays to be extra careful.
The following are some of the major items you should pay close attention to:
1) What exactly did the charity do with you’re the vehicle you donated? If at all they sold it, then the actual selling price of the vehicle is turns to be the maximum amount that you can deduct from your taxes.
This simply means it is possible not a brilliant idea to donate your car or truck in March or early even April because that wouldn’t allow enough time for the charity organization to sell the vehicle. Make sure you always give them at least six months to do so. That is why I strongly believe summer or fall is a much better time to donate your car or truck so as to deduct its selling price from your taxes come next April.
Remember, because most charities normally sell the donated vehicles at wholesale prices, you really don’t expect to get a "top value" for your car. It is not uncommon for a used or rather old vehicle to sell for $100 or even $50 to a car dealer. If that is really the case, then you will also be allowed to deduct only $100 or $50 from your total income tax.
Donating an old or little-used vehicle to charity is a win-win idea but you have to make sure you satisfy IRS's 2005 conditions in order not to get an audit, as explained in Part 1 of this article. Here are the other conditions:
2) If your vehicle is used by the charity in their daily operations, you can deduct its "fair market value" but it has to be a "significant intervening use." For example, if the charity is using your donated vehicle to deliver meals-on-wheels and registers over 10,000 miles a year, then that counts as a "significant intervening use."
3) You can also deduct the "fair market value" if the charity has made repairs and improvements that significantly increased the value of the vehicle. And a paint job or new tires do not count as an "improvement." A new engine or transmission would be more like it.
4) You can also deduct a "fair market value" if the charity, instead of wholesaling it, gives the vehicle to a poor person either for free or well below its market price.
5) And here is how "fair market value" is defined... Usually, most standard car price guides like Kelley Blue Book lists three prices for a vehicle, independently of its condition: Trade-in, Private-Party, and Dealer Retail. If the above conditions apply, you can deduct the PRIVATE-PARTY price from your taxes.
CHECK LIST:
You need a written letter of donation from your charity if the vehicle's value is over $500.
These are the forms you need to use to deduct your vehicle's worth from your taxes: IRS Form 1098-C (Contributions of Motor Vehicles, Boats, and Airplanes) and Form 8283 (Noncash Charitable Contributions).
If you claim that the value of your donated vehicle is over $5,000 then you need a written independent appraisal to back up your claim.
If you'd like to read the whole Treasury Department regulation on this issue you can visit http://www.treas.gov/press/releases/reports/not155419041.pdf
And if you would like to check whether the charity you are making a vehicle donation to is accepted by the IRS or not, you can do so easily at http://apps.irs.gov/app/pub78
Well, to sum this up, I want to recommend to seek the services of a trusted tax professional who will help you navigate this rather difficult field. We also know it is not an easy task to a reliable and honest tax preparer or accountant that’s why we are here for you. With countless number of clients who have benefited from our services, you can surely count yourself lucky. This issue of donating a car to charity is not minor and should be treated with a lot of seriousness. We are all you need right now.
ERNIE BUSTAMANTE