Is a Vehicle Donation Tax-Deductible?

By Contributing Writer

  • Overview

    Is a Vehicle Donation Tax-Deductible?
    There are a number of charities that accept vehicle donations as a form of fundraising. Donating an old car to charity has become a popular way for Americans to give back to their communities while enjoying a hefty tax deduction. However, the Internal Revenue Service changed the rules for deducting a vehicle donation in 2005, so there are several things to keep in mind before you donate your old car.
  • The Simple Answer

    In general, vehicle donations are tax-deductible as long as they are donated to a qualified charity. When you donate a used car to a charitable organization, you are able to claim a deduction on your income taxes. Always check with your accountant or tax advisor before you decide to donate your vehicle for a tax deduction.
  • Fair Market Value

    The IRS made life a little bit more complicated in 2005, when it changed the rules for deducting a vehicle. Before 2005, people who donated a vehicle to a charity were able to deduct the "fair market value" of the car on their taxes. This was a great benefit for car owners who decided to donate their vehicles, but the IRS decided to change this rule in 2005.

  • Rules Changes in 2005

    The new rules implemented by the IRS changed this process. A vehicle donation is still tax-deductible under the new rules, but the amount you can claim is very different. Now, if you donate a car worth more than $500 to a charity, you can only deduct the actual selling price, which is the amount the charity receives for selling your vehicle at an auction. Unfortunately, this can often be much less than the fair market value.
  • The Exception

    There is one exception to the new IRS rule. If the charity does not sell the car at an auction but instead provides the car to a needy family or individual as a gift, you can still claim the fair market value of the car on your taxes. So, if you want to deduct the market value of your donation, make sure you work with a charity that will not sell your donation. In addition, you must receive a receipt from the charity certifying that it will not sell the car and detailing how it will use the vehicle.
  • Other Considerations

    There are other things to keep in mind when donating a vehicle for a tax deduction. According to the IRS, you can only claim a vehicle donation if you itemize deductions using Form 1040 Schedule A. There are income limits as well, and your deduction cannot be more than half of your gross income.
  • More Information

    Always speak to your accountant, tax advisor or the IRS if you have questions about your income taxes and tax-deductible items. Contact the IRS at (800) 829-3676.

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