Hey, are you planning to donate your car to a charitable organization? Do your purpose tax-deduction benefits? Are you qualifying to deduct in a charitable organization? If you are; examine the price of the car, inspect the charity organization you are planning to donate your car. There are many factors affect the cost of the car as manufacturing date, present conditions of the car etc.
A Car Is Damaged And Not Working?
If your car is critically damaged that you can’t operate it, donating it will be a great choice. First, you will upbeat by the inner satisfaction of donation. Second, you will get a deduction in total taxable amount. Further, they can donate the car’s part or repair it for their use.
A Car Is In Working Condition; You Are Planning To Buy New One Or You Have Bought One Already?
If your wish is that someone needy can use the car, donate it to a charitable organization. Fulfill your responsibilities as a donor and complete paperwork to get benefits in tax deduction. Suppose you are donating it for scientific purposes and its market value is $500 then you will get exemption of $500.
step 1. How To Check Eligibility For Tax Deduction While Donating?
Publication 526, charitable contribution, gives you an idea that you are eligible for tax deduction or not. It can be 40% or 100%, depends on your gross income. Once you get to know about your tax deduction limits plan accordingly. You must check for valid proofs you will need while applying for the deduction.
step 2. Determining The Value Of Your Car:
The value of the car is determined by its fair market value. Fair market value is the price at which the buyer and the seller willingly agree to buy or sell. It doesn’t determine the exact analysis of engine and internal conditions. You can use Kelly Blue Book to check your cars real value.
Once donated car’s fair market value you could claim for tax write off. Previously, it was easy to claim tax deduction at fair market value. But, Due to wrong practices of some donors; lawmakers enacted solid rules and defined $500 as the threshold value for donating an auto vehicle. After reaching the threshold value it is now perplexing to claim tax deductions.
step 3. Charitable Organizations:
A Non-profit organization which exempt from income-taxes are those whose purposes is based on, Charitable purposes, Religious purposes, Educational purposes, Scientific purposes, and literary purposes. To check whether the organization is non-profit or not; visit IRS website. Enter the correct name of the organization to see all the information regarding them. Some of the famous organizations are:
- Mercy Chapel International
- Academic and Behavioral Clinic Inc.
- Usta National Junior Tennis League Inc
- Healing and Deliverance Ministry Inc.
- Knights of Pythias of Maine Grand Lodge
- Laurel Hill Cemetery Association
step 4. The Donor Can Claim For Deduction In Following Situations:
Your deduction totally depends upon for what purposes the charity using it.
- Significant Intervening Use Of The Car
Suppose you have donated your car to some school and they are using it for transportation or meals. The use of a car for charitable purposes comes under tax deduction.
- Material Improvement Has Increased The Value Of The Car
If material improvement has increased the value of the car, the donor can claim for a tax deduction on its increased market price. Material improvement doesn’t include installation of A.C., Audio, LED, speakers for luxury purposes. It includes changes in an engine and material changes which are necessary for car’s working.
- Further Donation To Needy
If the charity organization sells it later to a poor or needy for charitable purposes, the donor can claim the deduction. Suppose the charity has sold it for $500 and fair market value is $700, the donor can claim tax deduction on $500. According to new law, the donor can claim also for fair market value. In this case, he can claim for $700.
- Sell The Car And Donate The Cash
This is another way of donation. Sell the car yourself and donate the cash you have got to the charity. It may increase your donation money and tax deduction. If the charity takes your vehicle for further selling, selling it yourself and donating will yield more. The selling money can be more than fair market value. You can claim the deduction on the cash you donated to the organization. It will give you more tax write-off benefits.
step 5. Documents You Need To Claim Deduction:
- The name of the non-profit organization you donated the car
- Details of the car’s specifications.
- Statement of the organization you donated the vehicle and worth of goods and services you received if any.
- A legal document of exchanging of goods and services including the fields as car’s identification number, the date of donation, your name, organization’s name.
- Copy of IRS Form 1098-C
- The detailing of the purpose the charity going to use the vehicle.
step 6. Don’t Forget To File Tax Returns:
The year you have donated your car, apply for the tax deduction in that year. Fill all the fields with necessary documents mentioned above. Including old car in your itemization will let reach your deduction to the standard point. Do remember, you will get tax deduction in taxable income, not tax benefits. You will end up with lesser tax this year.
So, choose to donate a car for tax write off can be a saving option for you. Do it wisely and choose the correct charity organization as I have taught you how to evaluate each and every step.
Frequently Asked Questions:
Q.1. What if a car is sold at lesser price than fair market value?
Ans. Under the new rule, you can claim for the fair market value of the car. IRS if the charity sells the car at lesser value or needy one, the larger deduction is acceptable up to a limit.
Q.2. Does the donated car consider in the same year I filled the online form if the car isn’t picked up in the next year?
Ans. Yes, it considers the date of donation form received.