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Tax Planning 

Does Your Automobile Donation Qualify as a Tax Deduction? 

If you are looking to increase your charitable donations this year, you may want to consider donating your old automobile to charity. But, taxpayers looking for a way to reduce their tax liability, and “do good” at the same time, need to understand the requirements necessary to receive the deduction. The Internal Revenue Service (IRS), along with the National Association of State Charity Officials, recommends the following guidelines to help ensure your automobile donation qualifies as a tax deduction:

The charity must be a “qualified” charitable organization. You can check to see if your charity qualifies by visiting the IRS website,. You may also wish to review the financial statements of the charity (available from the Secretary of State or Attorney General), to ascertain how long the charity has been around, as well as what percentage of donations is used for charitable purposes, and what percentage is used for administrative costs. The charity must be legitimate in order to qualify your donation for a tax deduction.

Question the organization regarding the ultimate disposition of the automobile. Is it the intent of the charity to resell the car, or perhaps to fix the car and donate it to a needy individual? What percentage of the proceeds from the sale will be used for charitable purposes?

Most taxpayers do not itemize their deductions, because they do not exceed the limits of $5,150 for single filers and $10,300 for married individuals filing jointly (in 2007). However, you must itemize your income tax deductions in order to take advantage of this tax deduction.

The amount of the donation may not exceed the fair market value (FMV) of the donated automobile. It is the responsibility of the taxpayer to calculate the fair market value of the car. The FMV should not be confused with the “blue book” value of the car, which some charities use as the deductibility benchmark. The fair market value includes such factors as the driving condition of the car and its mileage, as well as accessories such as anti-theft devices and audio equipment that will have an impact on the value. Taxpayers may consult IRS Publications 526 and 561 for detailed instructions on how to determine the fair market value of the car, as well as required IRS forms for documenting the fair market value.

The taxpayer must comply with all state laws regarding transfer of ownership to the charity, car titling, registration, and license plates.

Donating an automobile can be a wonderful gift to a charity, while providing you with an additional deduction for your taxes. Just be certain that you choose a qualified charity to work with, and that you retain documentation of your donation for your tax records. You may wish to consult with your tax professional for more information.

Copyright © 2003 Liberty Publishing, Inc. All rights reserved. 


 

 
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