Did you know that a car donation to a charity can actually help you save taxes? This is possible if you mention it on your charitable contribution deduction. Precisely, the IRS, also known as the Internal Revenue Service, asks you to do your tax deduction calculation in either of these two ways:
- Tax deduction on donating a car to charity is restricted to the sales price of the vehicle.
- In other circumstances, you can resort to using the fair market value of your car.
Below are four easy steps that can help you comprehend how tax deduction works and how it is possible to claim one in case of making a contribution.
Knowing the exact value at which your car is sold
Start by making use of the price obtained by the charity on selling your car for your tax deduction. For instance, if the charity happens to sell the car for $4000, the deduction cost should be limited to $4000 only, regardless of the fact that whether its market value is more than the limitation. Nevertheless, if the charity uses the car for selling it to a needy person, or happens to retain it for internal use, then you can ask for a deduction equivalent to the car’s market value. Most charities out there practice informing the donator about the sale price of their contribution through Form 1098-C.
Look out for your car’s market value
As per the IRS’s suggestion, you can look for your car’s fair market price by using a car price guide. For starters, you could refer to the Kelley Blue Book, which can be found online or at a good bookstore. Besides that, consider going through prices placed by private parties on the basis of the assembly, model number, and overall condition.
Declaring the deduction
Before you claim your deduction, make sure that you are in possession of your car’s documentation regarding the donation deal. A typical donation document received from the charity must have:
- Your name
- The number that identifies your vehicle
- The date on which you donated the car
- An affirmation that describes all sorts of goods and services received on your behalf.
On Schedule A, you must describe the amount of your deduction. Remember that, in case of itemization, your viable outlay should be more than the standard deduction amount for the filing status.
Auxiliary forms you’ll require
If you’re the deduction on your car donation is more than $500, then you need to complete Form 8283. For tax deductions of more than $501 and less than $5,000, Section A must be completed. But if the deduction exceeds $5000, then Section B must be filled. Upon filling, section B requires you to get a written appraisal as per the documentation.
These tax deduction dealings are way more complicated than they sound. So if you are still undecided on what should be done, ask the charity organization that you are willing to donate to. It’s suggested that you give your vehicle to a reputable charity like the Jewish national charity, a goodwill car donation program, or habitat for humanity.