Donate a car for tax credit

Do you have an old car that you don't use anymore? Are you thinking of selling it or donating it? People sometimes decide to donate their old car or broken car because the cost of repair to fix it is much more than its value. Finding the right charity can be hard at times. Just make sure that your chosen charity is IRS accredited.

Claiming a Tax Deduction For Donating A Car

Select the right charity

If you want to claim a tax deduction for your donation, you should make sure that the charity or organization is qualified, otherwise, you can't claim a tax deduction for your donation. The most qualified charities are section 501(c)(3) organizations like religious groups, educational and charitable organizations. To verify if the charity is qualified, you can check the IRS website "EO Select Check" tool, or you may also call the IRS tax-exempt division toll-free at (877) 829-5500. When calling, make sure that you have the charity's name and address.

Qualify for tax deduction

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You need to itemize your deduction on your 1040 Form (Schedule A) to be able to deduct your contribution to the charity.

Determine the amount you can claim

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If your car contribution is more than $500, you need to furnish a written acknowledgement. It must contain the following:  

1. Your name and your TIN (Tax Identification Number).
2. The VIN (Vehicle identification number) of your car.
3. The date of your donation and a statement that you didn't receive anything in return from the charity.
4. An estimated value of your car. You can tryEdmunds, Carfax or KBB to get the market value of your car.
5. A statement that there was no service provided by the charity.
6. NOTE: The tax deduction may not exceed $500 if the written acknowledgment does not include all the information.

If your tax deduction is at least $250 and less than $500, you need to submit a written acknowledgment that lists the following

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1. Name of the charity.
2. Description of your car.
3. One of the following: Value of the car that the charity provided and the statement you didn't receive anything from the charity in return for your contribution/donation.

If the charity was able to sell your vehicle, the amount of your deduction is limited to the amount the charity got from the sale

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Aside from the indicated information above, the written acknowledgment must contain the following:  

1. A certified statement that the car was not sold to a relative or friend or related parties.
2. The date the car was sold.
3. The amount of money received from the transaction.
4. A statement that your tax claim may not exceed the amount of the sale.

There is an exemption to the gross limit

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You may be eligible to claim the market value of your car on the date you gave it if one of the following applies:  

1. The written acknowledgment contains a statement that the charity plans to make an important intervening use of the car. It should have a detailed description of where to use it or its purpose and the amount of time the charity is going to use the car. Also, it should contain a statement that your car will not be sold before the said duration.
2. The written acknowledgment must contain a statement that the charity plans to make an improvement to the car. It should be in the detailed description like what parts need to be replaced, etc. It must also include a statement that the charity will not sell your car before the completion of the said planned improvement.
3. The written acknowledgment should contain a statement that the charity or organization plans to give or sell your car to the needy below the fair market value of your car. It must also contain a statement that the charity will sell the car to the poor or needy to help the underprivileged who needs transportation.

NOTE: You must get a written acknowledgement from the charity within 30 days from the time you donated your car.

The form that the charity should use is 1098-C (Contributions of Motor Vehicles, Boats, and Airplanes)

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Make sure you attach the Form 8283 (Non cash Charitable Contributions) and the written acknowledgment to your return.

Keep all the records filing requirements

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Make sure that you have all the necessary documents before you file your taxes.

Do a Title Transfer

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Some charities do the paperwork, and they also pick up your vehicle free of charge. When transferring your title, you must submit an odometer reading, title transfer application and the VIN to the Department of Motor Vehicle.

Surrender plate number

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Some states will require you to cancel plate and tags and surrender it to the DMV. Some states may only require you a notice of transfer.

Is a 1098-C form necessary if a written acknowledgement note was sent to the donor?

As stated in Internal Revenue Service (IRS) rules, if a donor contributes a qualified vehicle to you with more than a $500 value, you must furnish a written contemporaneous acknowledgement of the donor's contribution containing the same information in the 1908-C. Otherwise, the donor cannot claim the deduction of the value as more then $500 of that vehicle.

How to know when your car is considered a qualified vehicle?

Any motor vehicle manufactured for use on public roadways, or a boat or airplane, is a qualified vehicle. The exception is when the property's purpose is to be primarily used for sale. It is then categorized as "inventory" of the dealer that will be selling the car, and is not considered a qualified vehicle.

Contemporaneous Written Acknowledgement vs Ordinary Acknowledgement Note

To qualify as contemporaneous, an acknowledgement will need to be issued within 30 days of one of these two conditions:

• Date of the sale, if you are required to check box 4a.
• Date of the contribution, if you are required to check box 5a or 5b.

You'll need to either deliver Copies B and C of the 1098-C form to the donor, or draft a personal acknowledgment. These personal acknowledgements must contain the same information as the form copies.

Special Instructions

You should not submit a 1098-C when donating a qualified vehicle worth $500 or less. It can, however, serve as the required written acknowledgment. To use it for that purpose, submit Copy C only.

Tips Tricks & Warnings

• Always ask for a certified receipt for a car or any donation you make.
• Always consult your tax professional on how to claim and maximize your tax deductions.

As stated in Internal Revenue Service (IRS) rules, if a donor contributes a qualified vehicle to you with more than a $500 value, you must furnish a written contemporaneous acknowledgement of the donor's contribution containing the same information in the 1908-C. Otherwise, the donor cannot claim the deduction of the value as more then $500 of that vehicle.

How to know when your car is considered a qualified vehicle?

Any motor vehicle manufactured for use on public roadways, or a boat or airplane, is a qualified vehicle. The exception is when the property's purpose is to be primarily used for sale. It is then categorized as "inventory" of the dealer that will be selling the car, and is not considered a qualified vehicle.

Contemporaneous Written Acknowledgement vs Ordinary Acknowledgement Note

To qualify as contemporaneous, an acknowledgement will need to be issued within 30 days of one of these two conditions:

• Date of the sale, if you are required to check box 4a.
• Date of the contribution, if you are required to check box 5a or 5b.

You'll need to either deliver Copies B and C of the 1098-C form to the donor, or draft a personal acknowledgment. These personal acknowledgements must contain the same information as the form copies.

Special Instruction

You should not submit a 1098-C when donating a qualified vehicle worth $500 or less. It can, however, serve as the required written acknowledgment. To use it for that purpose, submit Copy C only.