Tax-deductible car donations offer a financial incentive to drivers who give their vehicles to qualified charities. If you're considering donating a vehicle to a charity, however, you should donate your car or truck out of the goodness in your heart -- not in order to get rich. While donating a vehicle may save you a little on your tax bill, it won't make you wealthy. Here's a look at what the IRS might give you for donating your vehicle to a charity.
Fair Market Value or Selling Price
In 2005, the laws governing tax-deductible car donations changed. Under the new laws, as the IRS explains, drivers can only deduct the fair market value of their donated vehicle if it meets one of four conditions:
- the fair market value of the vehicle is under $500
- the charity significantly improves the vehicle (e.g. makes a major repair)
- the charity makes significant use of the vehicle
- the charity sells the vehicle to a person in need at below-market value, and this is part of the charity's mission
Unless your vehicle meets one of these criteria, you will only be able to deduct how much the charity sells the car for. Since most charities sell vehicles at auction, it's unlikely that yours will go for fair market value. It may sell for significantly less than it would sell for in a private-party sale.
Your Tax Deduction
As with all tax deductions, the deduction you receive for donating your vehicle will only discount your tax bill by a percentage of your vehicle's fair market value or selling price. The ultimate financial benefit you receive for your tax-deductible car donation will depend on your income tax bracket, which may be 10, 15, 25, 28, 33, 35 or 39.6 percent.
For example, if you donate a car that has a fair market value of $2,500 but is sold at auction for only $2,000, you can claim $2,000 on your taxes. The amount you pay in taxes will be lowered by anywhere from 10 to 39.6 percent of $2,000. Depending on your tax bracket, you may save between $200 and $792 for donating your vehicle to a charity.
Saving a few hundred dollars on your taxes is always good, but it's not going to make you a millionaire. If you're considering making a tax-deductible car donation, find a charity you believe in and give that charity your car out of the goodness of your heart. You won't get rich by donating your vehicle, but it's a way to help charities help people -- and that's a good thing to do.
For more information, contact Newgate School or a similar company.