DOES YOUR VEHICLE DONATION QUALIFY AS A TAX DEDUCTION?
Donating a vehicle is a great way to benefit a charity and reduce your tax liabilities. As with most tax benefits, Internal Revenue Service (IRS) regulations apply. Following the rules can help ensure you receive a tax deduction for your good deed.
Firstly, the charity you choose to contribute to must be a qualified charitable organization. Most charities will be able to tell you if they are qualified organizations. In addition, you can use the IRS’s online search tool Exempt Organizations Select Check to verify the organization’s tax-exempt status. For more information about a particular charity, review their financial statements, including their Form 990 filings. Remember that you have a right to be informed about how your contributions will be used, as well as what percentage of donations will be used for charitable purposes and what percentage will be used for administrative costs.
A Closer Look at DeductionsI
n addition to benefiting the charities of your choice, donations that qualify as deductions help reduce your taxable income. In order to take advantage of your automobile donation, you must itemize deductions on your income tax return, and the total of all your deductions (e.g. mortgage interest) should exceed the standard deduction. As you assess the tax benefits of any charitable gift, it is important to consider your total donations for the year. Certain limits on deductions may apply depending on the type of property you donate and the type of organization that receives it.
When you donate a vehicle worth more than $500, you may deduct only the amount the charity receives for the sale of the car. Most charities typically wholesale donated cars and receive less than market value. In the event the charity retains the vehicle for its own use, the taxpayer is responsible for substantiating how the vehicle will be used and for how long.
These vehicle donation rules only apply when the deduction exceeds $500. If you are claiming $500 or less, it is irrelevant how the charity manages your donation.
Donating an automobile can be a wonderful gift to a charity, while providing you with an additional deduction for your taxes. Knowing the “rules of the road” can help smooth the way. For specific guidance, consult your qualified tax professional.