Benefits of Car Donation in Taxes

If you want to get rid of your old car, you can donate your car to charity. It is very easy to donate your car by making a call to the charity that accepts old vehicle and they will tow your car from your home.

The main question is arising that you may get tax benefit from this car donation or not. Yes, a car donor has got benefit in taxes. The car donor deducts the entire fair market value of the donated vehicle from their taxable income and thus he has to pay fewer taxes.

But due to the greediness of some tax payers who claims very high market value of their old vehicles, The Internal Revenue Service (IRS) tightened the rule on the car donation deduction. The tax payers deduct the fair market value of the donated vehicles under some specific situations. It is very necessary to know the fair market value of the donated car before applying for any deduction.

Rules of IRS from which a Tax payer can get the maximum deduction from car donation: -

1. When a charity auctions the donated car for 500$ or less, the tax payer can claim either the fair market value or 500$, whichever is less.

2. When the charity aim is to make a "important intervening use of the vehicle." This means the charity will use the car in its work, such as delivering meals to needy people.

3. When the charity intends to make a "material improvement" to the vehicle, which is "anything that increases the car's value and prolongs its life," Midwood says. "It can't be a minor repair or maintenance; it must be something like fixing the engine or systems that run the car," she says.

4. When the charity gives or sells the vehicle to a needy individual at a price significantly below fair market value, and the gift or sale is part of the charity's mission of helping the needy who need transportation.

The IRS says that the larger deduction is given in the cases where a charity gives the donated vehicle to a needy person for the purpose of transportation or sells it for a price which is considerably below market value.

It is very important to make sure the vehicle did indeed go to a needy individual. The IRS discovered after the vehicle donation rules changed that some charities sold autos at auction but reported that they sales at prices well below market value to trigger the exception that allows the donor a higher deduction amount. If the IRS discovers such false reporting, it could totally disallow your donation and deduction.