There are several steps to donating cars for charity and obtaining tax deductions for them. Many charities provide significant tax deductions based upon the vehicle’s market value, regardless of the amounts it was bought or sold for. However, determining the fair market value of donated company cars is typically a difficult and time-consuming process. As a financial professional, take advantage of various tax laws that streamline the process of valuing any donated cars, trucks, or RVs. Read on to discover how to start donating cars to charity for tax deductions.
Decide On A Charity
Deciding on a charity to donate your vehicle to is the first step in the process, since not all charities are reputable. The most important consideration to make when picking a charity is an “exempt” status. The charity you choose must be a 501(c)(3) organization, also known as a tax-exempt nonprofit organization. You can ask prospective charities to see their IRS letters, or use an online search tool provided by the IRS to verify their exempt status. Surely, deciding on charity to donate your vehicle to determines your ability to receive tax deductions for it.
Second, you’ll need to provide necessary documents to the charity for the vehicle’s ownership transfer process. The documents needed vary by state, but most states require a clear title. Some states also require notarized signatures to complete donation processes. If you’re in a state that requires this, don’t sign the title without a notary present. Many reputable and nonprofit corporations can help you replace these important documents if you’ve lost them, as well. Absolutely, providing the title and other necessary documents allows you to transfer ownership of the vehicle.
Determine Charity’s Selling Price
Third, determine how much the charity sold your car for, and use that price as your deduction amount. If the charity sold your car for $2,000, for example, your deduction is limited to that amount, even if the fair market value is higher. However, if the charity sold your car at a significant discount, or keeps it, you can claim the fair market value as your deduction. Additionally, your car may sell for $500 or less. If that happens, you deduct either $500 or your car’s market value, whichever is less. If your car is valued at $700, but sells for $400, you can deduct $500. Certainly, figuring out the price the charity sold your car at determines the amount of your deduction.
Itemize Next Tax Return
You need to itemize the deductions on your next tax return after the donation to evaluate its value against standard tax deductions. For example, if you’re in a 28% tax bracket, and your claimable deduction amount is $2,000, you save $560 in taxes. However, if you’re in the 15% tax bracket with the same deduction amount, you’ll only receive $300. If your car donation is your only deduction, taking the standard deduction will save you more money. You’ll really only benefit from donating a vehicle if you have several more deductions that total (including the car) more than the standard deduction. Definitely, itemize deductions on your first tax return after the donation to visualize the vehicle’s impact on your tax return.
Attach Proper Forms To Next Tax Return
Attach the proper forms to your next tax return after the donation, as well. The forms needed for this are determined by the amount of your vehicle deduction. When charities sell donated cars for money, they provide their donors with written acknowledgement or Form 1098-C. If your deduction was $500 or less, you don’t need to submit any forms, but should keep the records in case you’re audited. If your deduction was between $501 and $5,000, you need to file Form 1098-C or the provided written acknowledgement, and Section A of Form 8283. For deductions more than $5,000, you’ll need to file Form 1098-C or the acknowledgement, and Section B of Form 8283. If the charity isn’t selling your vehicle, you’ll need to provide their written appraisal, as well. Of course, attaching the proper forms to your next tax return provides the documentation necessary for the IRS to accept your deductions.
There are many methods to receive tax deductions from donating cars to charity. One method involves determining charitable organizations with “exempt” status to donate to as the first step. Second, you’ll need to provide various documents such as the title to transfer ownership of the vehicle. Next, determine the price the charity sold your car for to calculate the amount of your deductions. Fourth, itemize the deductions on your first post-donation tax return to evaluate its value compared to standard tax deductions. Finally, attach the proper forms to your post-donation tax return so the IRS accepts the records of your donations. When wondering how to start donating cars to charity for tax deductions, consider the steps described above.