Keep in Mind: Donating your car to charity can result in significant tax savings if you include it in your charitable contribution deduction. However, doing a little planning will ensure that you maximize the tax savings of your donation. The Internal Revenue Service (IRS) requires you to calculate your deduction in one of two ways, depending on how the charity uses your donation. Deductions for cars the charity sells are limited to the sales price. In all other cases, you can use the car's fair market value.
Step 1: Figure out how much the charity sold the car for
Use the price the charity obtains for your car in a sale as the amount of your deduction. For example, if the charity sells the car at auction for $3k, your deduction is limited to $3k, even if the fair market value is $4.5k. However, if the charity sells the car at a discount to a needy individual or keeps the car for its own internal use, then you can claim a deduction for its fair market value.
Step 3: Claiming the tax credit
Report the amount of your deduction on line 17 of Schedule A. Since you can only claim a deduction for your car donation if you itemize, the total of all your eligible expenses on Schedule A must exceed the standard deduction amount for your filing status.
Step 4: More forms you'll need
Complete Form 8283 if your car donation deduction is more than $500. If your deduction is between $501 and $5k, you must complete Section A. If your deduction is greater than $5k, you must complete Section B. If you complete Section B, you must also obtain a written appraisal as documentation.
