Donating Your Car To Charity
Friday, August 13th, 2010Donating a car to charity is not that difficult. However, you need to be aware of the tax regulations before you donate your car to a non-profit organization. The IRS provides some general rules of thumb on car donations:
Starting in 2005, if the claimed value of your donated car exceeds $500 and the item is sold by the charitable organization, your tax deduction is limited to the amount of money the charitable organization actually receives from selling the vehicle.
The charitable organization must provide you (the donor) with a written acknowledgement within thirty days of the sale, specifically stating the net amount they received for selling your donated car.
As an example, let’s say you make a car donation to a non-profit charity, and the fair market value of that car is $5,000. The charity then sells the car without “significant use” or “material improvement”, for a total sale price of $2,500. Your deduction is limited to $2,500, not the $5,000 fair market value.
This is substantially different than earlier years when you could deduct the entire estimated fair market value instead of the amount that the car donation actually raised for the charity.
Another caveat is that many non-profit organizations use a third-party administrative service to handle the pick-up and auction sale or your car donation. The resulting administrative fees are often 20% or more of what the car sells for at auction.
Your tax deduction is correspondingly lowered by the amount of third-party fees because the net amount the charity receives has been reduced. In the example above, your car donation deduction would be reduced from $2,500 to $2,000.
There are a few exceptions to these car donation tax deduction rules of thumb that are recognized by the IRS.
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