Are Those Donate Your Car for Tax Writeoffs on the Level?

By Bill Herrfeldt

  • Overview

    As long as you are donating to a charity recognized by the IRS as a 503c organization, and certain rules are followed, the "donate your car for a tax write-off" schemes are on the level. Look at IRS Publication 4302, linked to below, to give you the particulars about this form of tax deduction and the limits imposed on your gifts.
  • New Laws

    In 2005, the laws that governed the deduction you can take on your taxes were amended. Until that time, people were deducting far more than their vehicles were worth, so the laws created parameters. Also, the charities were asked to become more involved in these transactions. Since those new restrictions came about, charities all across the nation saw vehicle donations reduced by about one-third.
  • Rules

    As a general rule, taxpayers can deduct up to $250 for each contribution that is made to a charity. If that amount is exceeded, the taxpayer must receive notification from the charity that a donation exceeding that amount was made. The government allows a taxpayer to deduct up to $500 so long as the charity is a qualified 503c entity, it acknowledges the donation and it certifies that nothing of value was given to the donor to induce the gift. If there was such an inducement, it must attest that the goods or services were of intangible religious benefit. If the donation exceeded $500 and the charity sold it at auction, it must inform the donor of the gross amount realized from the sale, the date it was sold and that it was made at arm's length.

  • Value Determination

    Some charities will make the donated car available to someone in need rather than auction the vehicle. If this is the case, the charity must inform the donor how the charity will put the vehicle to use, and its good-faith estimate of the value of the vehicle. The charity must inform the donor of its plans to make improvements to the vehicle, as well.
  • Function

    By tightening the rules, the IRS never intended to do away with this type of giving because many charities depend on donations of vehicles to stay viable. It was the IRS's attempt to clarify these charitable gifts and make the respective charities more accountable.
  • Warning

    A provision in IRS Publication 4302 refers to a situation where your deduction for a vehicle donation to charity may be invalid. If the charity has chosen a for-profit company to handle its vehicle donation program, and you make your gift to it rather than the charity, no deduction is allowed. Make sure that, in the case where a charity has another company handling its car donation program, it is 503c company, as well.
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