Donating your car to charity can result in significant tax savings if you include it in your charitable contribution deduction. However, doing a little planning will ensure that you maximize the tax savings of your donation. The Internal Revenue Service (IRS) requires you to calculate your deduction in one of two ways, depending on how the charity uses your donation. Deductions for cars the charity sells are limited to the sales price. In all other cases, you can use the car's fair market value.
- Determine the car's fair market value:
The IRS suggests that you use a reputable used-car price guide to calculate your deduction when using fair market value. For example, go online or to your local library and obtain a recent copy of the Kelley Blue Book. Search the private party prices for your vehicle based on its make, model and overall condition. This type of search can be done on the Internet as well.
- Find out how much the charity sold the car for:
Use the price the charity obtains for your car in a sale as the amount of your deduction. For example, if the charity sells the car at auction for $3,000, your deduction is limited to $3,000, even if the fair market value is $4,500. However, if the charity sells the car at a significant discount to a needy individual or keeps the car for its own internal use, then you can claim a deduction for its fair market value.
- Claiming the deduction:
Report the amount of your deduction on line 17 of Schedule A. Since you can only claim a deduction for your car donation if you itemize, the total of all your eligible expenses on Schedule A must exceed the standard deduction amount for your filing status.