It's easy to donate a vehicle to charity if all you want to do is get rid of it. Merely call a charity that accepts old cars, and it will tow your junker away.
If you wish to get something in return for your scrap vehicle, though, it's more complicated. Until 2005, it was easy for taxpayers to deduct the complete "reasonable market price" of a donated car from their gross income, decreasing the taxes they'd be required to pay to the Internal Revenue Service.
Allowing taxpayers to deduct the full fair market worth for all those contributed cars or trucks cost the IRS a lot of money, however, so they tightened up the guidelines. Today, you can just deduct an automobile's fair market worth under really particular conditions. We're going to stroll you through those conditions, with the normal proviso that you must discuss these problems with your tax preparer beforehand. Likewise note that this is just a generalized summary, not a detailed how-to.
Money for Your Old Vehicle: The $500 Donation Limit
In a lot of instances, a taxpayer should take into consideration a $500 threshold on car gifts. This value amount applies to vehicles, boats and even airplanes. When the donated vehicle's worth (based on reliable fair market worth analyses) surpasses that amount, claiming the deduction gets more complex.
This assessment ceiling comes into play when a charity offers a contributed vehicle. In this case, simply just how much a taxpayer can subtract depends on the amount the sale webs.
For instance, you contribute your old compact car that's worth $1,000. Under the old rules, that would be the amount you could deduct. But now, if the charity turns around and sells your donation for $800, your reduction is restricted to the lower sales price.
On the plus side: If the charity sells your vehicle for less than $500, you can deduct $500 or your car or truck's reasonable market value, whichever is less. For instance, if your car or truck is valued at $650 but goes for $350, you can still subtract $500 from your taxes.
Doing It Right
If the cars and truck is worth $5,000 or more, an independent appraisal is essential. The donor must also submit Section B of IRS Form 8283. For cars worth less than $5,000, but more than $500, utilize the Kelley Blue Book, the Hearst Black Book, or a guide from the National Auto Dealers Association (NADA) to determine the market value.
Know that non-cash contributions are one of the most common triggers to an audit by the IRS, so you'll desire to record the value of the automobile and keep records of it. At a minimum, the paperwork you receive from the charity needs to include your name, the vehicle recognition number, the date of your contribution and a statement explaining the products and services you received, if any.
Make sure you use the right figure for the date, mileage, and condition of your vehicle. Take pictures of the automobile and save receipts for new tires or other upgrades to confirm its worth. Keep in mind, it is the donor, not the charity, who is bound to value the cars and truck and who will pay the penalty if an IRS difficulty finds your figure inaccurate.
If all that sounds too made complex for your tastes, do not fret. You can junk your car or truck instead.
