Donating a car to charity is a great way to support a terrific cause while getting an unneeded vehicle out of your garage or driveway. However, if your interest in donating a car is motivated in part by a desire to get a tax write-off, it's important to understand the Internal Revenue Service (IRS) rules that apply to this type of donation.
Do You Itemize Deductions?
Donating a car to charity can only help reduce your income tax bill if you itemize deductions on your tax return. Unless your tax-deductible expenses exceed the standard deduction that all taxpayers are allowed to take, it isn't in your best interest to itemize. The standard deduction is adjusted each year based on inflation. For the 2022 tax year, the standard deductions are defined as follows:
- Married couples filing jointly: $25,900
- Single persons or married persons filing separately: $12,950
- Heads of households: $19,400
The vast majority of people do not itemize deductions. Prior to the Tax Cuts and Jobs Act of 2017, nearly one-third of American taxpayers itemized deductions on their income tax returns. Because that law increased the standard deduction significantly, now less than 14 percent of taxpayers itemize deductions. If you're in the vast majority of the population that doesn't itemize, donating a car (or any items) to charity will not reduce your federal income tax bill.
IRS Car Donation Rules for Valuation
If you do have enough tax-deductible expenses to exceed the standard deduction, and you choose to itemize, then donating your car may be tax-deductible. However, it's not as simple as giving away the car and writing off what you think it's worth. To be eligible for a tax deduction, donated cars must be given to an organization recognized as tax-exempt by the IRS. You can verify an organization's status by using the tax-exempt organization search tool on the IRS website. The IRS rules for vehicle donations dictate how value can be assigned to a donated car.
- If the charitable organization keeps the car that you donate to use in its day-to-day operations, you can deduct the fair market value of the car.
- If you give the car to a charitable organization and they sell it for $500 or more (without first having to make significant repairs), then your tax deduction is limited to the selling price of the car.
- If the organization gives the car to a needy individual or sells it to them for less than $500, you can deduct the vehicle's fair market value.
- You can also deduct the fair market value of the car if the charitable organization makes repairs that significantly increase its value prior to selling it.
To determine the vehicle's fair market value, consult a recognized guidebook, such as Kelley Blue Book. Be sure to look up the specific make and model of your vehicle. Use the private party valuation rather than wholesale, and take into account the current condition of the vehicle.
Form 1098-C: Car Donation Documentation
Nonprofits that receive donated cars are required to provide the donor with IRS Form 1098-C, which includes the donor's contact details and taxpayer identification number (TIN), along with information about the receiving organization. The form specifies how the vehicle is to be used, as well as if any conditions were attached to the donation, (such as if goods or services were provided in exchange for the vehicle). If the recipient sold the vehicle, the form must specify who bought it and how much they paid. As the donor, you'll need to include a copy of this IRS form with your year-end tax filing.
IRS Limit on Charitable Contribution Deductions
There is a limit on the amount taxpayers can deduct for total charitable contributions. The tax deduction for charitable contributions cannot exceed 50 percent of the taxpayer's adjusted gross income (AGI). This limit applies to the total of all contributions to charitable organizations, including cash donations, vehicle donations, and the value of other donated items. If you have been so generous to charities in the current year that the value of a vehicle donation would put you over the 50 percent of AGI mark, you will not be able to take the deduction. In that case, you may want to wait until the following year to make such a donation.
Seek Professional Tax Advice
If you have enough tax-deductible expenses to itemize, it's a good idea to seek advice from an accountant or other income tax expert. A tax professional can help you develop a tax plan and charitable giving strategy that will help you make the most of tax savings opportunities to minimize your income tax bill.
