What Portion of the Value of a Used Car Donated to a Charity Is Deductible?
What Portion of the Value of a Used Car Donated to a Charity Is Deductible?. If you have a used car you no longer want, you can save yourself the time and hassle of selling it by donating it to charity. Besides the warm fuzzy feeling you get from donating to a good cause, the Internal Revenue Service puts money in your pocket by allowing you a tax deduction from your federal income taxes.
Charitable Use of Car
When donating a car to a charity, the value of the car for the purposes of your tax deduction depends on the usage of the car by the charity. If you make a donation to a charity that makes use of your used car, you can deduct the full fair market value of your car. In the event that your selected charity auctions or otherwise sells the vehicle to raise funds for the charity, the IRS restricts the amount of your donation to the amount the charity receives when it sells your used car.
Claiming Fair Market Value
If the charity intends to use your car, allowing you to claim the fair market value of the used car for your deduction, the acknowledgement that you receive from the charity must specify how the charity intends to use the vehicle. Examples of statements include the charity saying how it will make intervening use of the car before it sells the car, that the charity will make material improvements to the car before selling it or that the charity will gift or sell the vehicle to a family in need below market value to aid the charity in carrying out its mission.
Charitable Donation Limits
The IRS also imposes limits on how much you can deduct for all of your charitable donations for the year based on your adjusted gross income (AGI). Typically, the limit equals 50 percent of your AGI, but the limit is lowered to 30 percent for gifts to certain charities including veterans' organizations, nonprofit cemeteries and fraternal societies. If your charitable donations exceed your limit, you can carry over the excess for up to five years.
Special Exception for Low-Price Cars
If you donate a car worth more than $500 to a charity and the charity sells it for less than $500, you can deduct the smaller of $500 or the fair market value rather than the selling price of your car. For example, if you donate a car with a fair market value of $900 to a charity that sells it for $400, you could claim a $500 deduction. Alternatively, if you donate a car with a $460 fair market value and it sells for $300, your deduction would be limited to $300.
- IRS.gov: Publication 526
- IRS.gov: Publication 4303