If you have donated a car to charity, you can have a significant tax deduction by including it under your charitable contribution deductions on your taxes for that year. You can maximize this savings by planning ahead. Depending upon how the charity has used your car, the Internal Revenue Service will have you calculate the deduction in one of two ways. If they sell the car, you are limited to their final selling price. Otherwise you’ll be able to use the fair market value.
When the charity sells your car, you use this total amount as your deduction. Even if the fair market value is higher, you can only claim the actual selling price. The only exception is if they have sold the vehicle to a needy individual at a discounted cost or they keep the car for their own use. In these cases you would use the fair market value.
A car’s fair market value is easily found. The IRS prefers you use a reputable source when calculating this amount. The Kelley Blue Book can be found at your local library. Look up your car by its make, model, and condition under private party prices. You can also find this information online. If your car has sold for less than $500, you can select either $500 or the fair market value. Pick the one that is less. For example, if your fair market value is $600 but they sold it for $300, you may deduct the $500.
Use line 17 of Schedule A to record your deduction amount. You must itemize when claiming this. Your eligible expenses total on Schedule A needs to exceed a standard amount for your individual filing status. It is important to have all the necessary forms completed. If the amount of your car donation deduction exceeded $500, you need to fill out Form 8283. Section A must be filled out if the deduction falls between $501 and $5,000. For any deduction above $5,000, fill out Section B. When Section B is used you will also need to include a written appraisal as documentation. You will receive the Form 1098-C from the charity stating the sale price of your car. Documentation of a donation is required. On this the charity needs to have your name, a vehicle identification number, a donation date, and a statement of the goods or services you may have received from the transaction, if any.