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Donate Your Car to a Charity and Realize a
Good Tax Break
If you have an old car taking up space in the driveway, but you
can't bring yourself to face the hassle of trying to sell the
car in the newspaper classified ads, there's another way you
can rid of it. Contact your favorite charity and see if they
are interested in taking the car off your hands. Not only is
giving your car away to a charity good for deposit in your
karma bank, when tax time rolls around, that donation can help
keep some of your cold hard cash in the bank as well by
allowing you to take a potentially sizable deduction.
First, a little bit of bad news: giving a car away to charity
for a tax break is not as easy as it used to be. The old tax
laws let you write off the fair market value of any car you
gave away to a charity group. Fair market value was determined
by auto industry standard evaluation services, like the Kelly
Blue Book, so if the Blue Book value of your car was $2,000,
you got to write that whole amount off when tax time arrived.
That system was fraught with abuse, however, with people
claiming inflated donation values in the amount of $654 million
in one year alone. Therefore, the law changed in 2005, and the
IRS now places some rules on the way donation deductions are
claimed.
As a general rule of thumb, the IRS places a cap on vehicle
donation deductions of $500. If your donation is worth more
than that, then you will meet a few criteria before you can
claim your deduction. First, you need to know how the charity
is using your car. If they take if from you and sell it, then
the price they sell it for is the amount you can claim as a
deduction, even if it is less than the value of the car. If the
charity sells your car for more than it is worth, you can only
claim a deduction up to the fair market value of the
vehicle.
There are a few exceptions. If the charity decides to give the
car away to a needy person, or if they sell the car to a needy
person for far below the fair market value, then in most cases
you can claim the actual worth of your car as your deduction.
Also, under the "Intervening Use Exception," if the charity
uses your car for awhile before selling it, and then sells it
for below the fair market value, you can claim the value of
your car at the time of the donation as your deduction, since
their use of the car lowered the value.
However, if the charity makes improvements to the car during
their time using it that increase the value of the car, and
then they turn around and sell it for more than it was worth
when you donated it, you can still only claim the fair market
value of the vehicle at the time of donation. Whichever
circumstance applies to you, the charity should notify you in
writing within 30 days of receipt of the car of their
intentions for the car and the donation value. If they sell the
car, they must notify you within 30 days in writing of the sale
price.
Keep in mind that deductions are not subtracted directly from
your tax bill, but rather allow you to reduce your tax bill by
a percentage. Exactly how much a deduction will take off your
tax bill depends on your income and how you file.
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