A change in the amount that can be deducted off your Federal taxes for a car or other vehicle has made donating a vehicle to charity a lot more complicated. In order to get the best tax deduction value, it’s essential to understand how the tax change works and what steps you need to take so that you can still get the true value of your car’s worth to deduct on your taxes.
To understand why this tax change was implemented, you need to understand what happens when you donate a vehicle to a charity. When you do donate to a charity, rarely does the charity use the donated car in its everyday operations. In most cases, the car is sold at auction to raise money for the charity.
In the past, no matter what the charity did with the donation, you were able to deduct the fair market value of the vehicle donated. The tax authorities realized that people were donating cars that were in worse than average condition to charities and claiming a fair market value for the make and model. Most people would figure out the fair market value of their car by looking at the blue book value and using that number as that amount to deduct off their taxes. Therefore the tax authorities made a change so that the amount of money that could be deducted for vehicles had to match the amount the vehicle sold for at auction and not its fair market value.
This would have little effect except that most vehicles sold at auction for charities sell well below their fair market value. This means that by donating a vehicle to charity now, you’re likely yo get a much smaller deduction on your taxes than you were able to get in years before.
There are ways to still get the fair market value tax deduction when donating your car to a charity. If the charity actually uses the car as part of their charitable activities and doesn’t sell it, then you can deduct the fair market value. You are much more likely to find a charity that will do this if they are small or cars and other vehicle are uses as part of their charitable organization such as giving vehicles to those who can’t afford them.
To be sure that your receive a fair market value deduction, get in writing before you make the donation that the vehicle will be used by the charitable organization. Again, smaller charitable organizations may have a greater need for a vehicle to use than the larger charitable organizations that use donated vehicles mainly to sell and raise money.
If you can not find a charity that will use the vehicle, then it makes sense to sell the car on your own. You are likely to get more than the charity would receive selling the car at auction. You can take whatever money your earned and give it to the charity thus giving both the charity more money and yourself a better tax deduction.