Confused about what value you can claim when you donate a car to charity and what paperwork you need in order to claim a tax deduction for your donation? Here’s a brief rundown of the types of deductions you are entitled to based on how the charity uses your vehicle donation and what the receiving charity should list on your tax receipt to ensure you get your full car donation tax deduction.
What Type of Receipt or Acknowledgement Do You Need to Claim a Tax Write Off Of Under $500?
Let’s start with the easier deduction. Car donations where you plan to claim less than or equal to $500 as the value of your vehicle have simpler requirements.
For this basic tax deduction, you will need a written acknowledgment for your vehicle donation which includes the name of the charity you donated to, a general description of the vehicle such as the year, make, model, but NOT the value. The receipt you receive should also include one of the following statements:
- A written statement that no goods or services were provided to you in exchange for this donation
- A good faith estimate of the value of goods and services that were given in exchange for this vehicle donation
- A statement that all goods and services provided to you in exchange for your vehicle donation were of a religious and therefore intangible nature
You should be in possession of this receipt or written acknowledgement before you file your tax return, or, if you have filed for extensions to file your taxes, be sure you have it before the final filing date.
Please note that this receipt or acknowledgment is for your records. It does NOT get filed with the IRS when you file your income tax. Keep this receipt with the rest of your financial records for the tax year being filed in case you need to verify the donation with the IRS.
Paperwork you should obtain for a donated car if you are claiming over $500
Claiming a vehicle tax deduction for a donation greater than $500 is a little more complex. To claim the amount of the gross proceeds on the sale of your vehicle, you must get the written acknowledgment from the charity within 30 days of the sale of your vehicle.
In some cases, a car donation qualifies for certain special exceptions which allow you to claim full Fair Market Value. This exemption will be covered later in this article.
The charity can submit to you either Form 1098-C, Contributions of Motor Vehicles, Boats and Airplanes or make a separate statement containing all the necessary information above.
One major difference between a charitable donation valued at $500 or less and one valued at over $500 is that the information you receive from the charity listed above as well as Form 8283, Noncash Charitable Contributions, should be attached to your tax return. It is very important to note that if you do not itemize your donation in this way, you will not qualify for your car donation tax credit at tax time.
What is the Fair Market Value Tax Deduction?
Now, there is another, more rare, category, which applies to car donors who meet the exceptions for gross value of a sale. These exceptions are listed out in detail in IRS Publication 4303. In order to qualify for a Fair Market Value tax deduction for a donated car, you must meet these IRS guidelines both in donating the car and in the information the charity lists on the acknowledgement they give you at the time of the pickup. These exceptions are as follows:
- You are entitled to claim an FMV deduction if the charity plans to make a material improvement to a car in the way of repairing or fixing it up so it they can sell it for a higher price. To qualify for this deduction, the acknowledgment from the charity should contain a statement certifying that the charity intends to make a material improvement to the vehicle, a detailed description of the intended material improvement and a certification that the vehicle will not be sold before completion of the improvement.
- The second exception occurs if the charity intends to make a "significant intervening use" of the vehicle. An example given of significant intervening use is of a charity using a donated van or car to deliver meals to the needy individuals they serve, etc. In that case, your receipt/acknowledgment should list a detailed description of the intended use, the duration of that use, and a certification that the vehicle will not be sold before completion of the use.
- The last exception involves the charity giving or selling your car donation to a needy individual at a price significantly below fair market value. In this last case, your acknowledgement from the charity should specifics of the donation or sale to the needy individual and should state that the gift or sale is in direct furtherance of the charity’s charitable purpose of relieving the poor and distressed or the underprivileged who are in need of a means of transportation.
It's important to note that this last exception will not apply if the charity merely applies the proceeds from the sale of the vehicle to a needy individual for any charitable purpose.
Car donors which qualify for the Fair Market Value Tax deduction need to find the fair market value (FMV) of their vehicle in order to determine what they are allowed to claim.
As a final note, if you are trying to claim a FMV deduction for your car donation, be sure to get a written acknowledgment from the charity on the date of your contribution.
Finding the Value of Your Car Donation (Only applicable if you can claim Fair Market Value)
Before you go any further, please note that not everyone needs to figure out the Fair Market Value of their car in order to claim a tax deduction. Most car donations will fall into one of two categories. Those who can claim a deduction of up to $500, and those eligible for the actual sales value (above $500).
If you qualify for an FMV tax deduction, your fair market value can be found in a pricing guide, such as NADA or Kelly’s Blue Book, which lists vehicles by make, model and year. You do need to find the value for the exact same vehicle being donated, which means you should try to find one with the same or similar accessories, age, general condition and mileage.
When valuing your FMV vehicle, be sure that your value doesn’t exceed the value you would receive through a private sale.
IRS Publication 561, Determining The Value of Donated Property, gives some helpful tips and instructions on finding the values of donated property.
What Documentation Do You Need To File For Various Types of Deductions
Knowing which paperwork to file can get confusing. We’ll give you a brief rundown here, but if it in doubt, give us a call at 877-505-5775 and we can point you in the right direction. One important point to remember is that when filing your taxes, it’s always a good practice to keep a copy of any receipts and acknowledgements for your records, in case anything gets lost in the process.
IRS FORM 8283
In order to claim a non-cash charitable donation (such as a car donation) IRS form 8283 must be completed and submitted with your tax return.
Claiming Tax Write-Offs Above $500, but under $5,000
As mentioned previously, if your vehicle is sold for more than $500 but less than $5,000, you can claim the actual sales value as your deduction. If you are claiming between $500 and $5000, you will need to fill out the top portion of Form 8283. The easiest place to get this form is online at IRS.gov.
Attach form 8283 to your Form 1040 when filing your taxes.
Tax Deductions Greater Than $5,000
For vehicle deductions which are greater than $5,000, you need to fill out section B on Form 8283. The signature of an official from the charity you donated to should be included on this form. If your vehicle is worth over $5,000 and qualifies for the Fair Market Value Tax Deduction, a written appraisal of your vehicle should be included.
Vehicle Donations over $5000 need to be Appraised Before you Donate:
Written appraisals for vehicles valued at over $5000 must be obtained from a qualified vehicle appraiser within 60 days BEFORE you donate the vehicle. For the rules and regulations that govern this, see IRS Publication 561, Determining The Value of Donated Property. The reason for this time frame is that the IRS wants to make sure that the appraised value is still current.
We hope this article has answered some your questions regarding what you have to file in order to claim your tax deduction. We truly appreciation your generosity. We know that when you are ready to dispose of an old car, you have a choice. Making the choice to donate a car to charity can go a long way towards helping us and other charities accomplish their missions and goals to help the needy and underprivileged in many different ways. If you donated a car or vehicle in 2012 and need help with the paperwork or have questions about which tax deduction you can claim, please do give us a call or live chat us at www.donateacar2charity.com. We are happy to help.
Copyright: sebra / 123RF Stock Photo