Car Donation as a Tax Write Off

Donating used cars to local charities can be both beneficial to the giver and the receiver. Not only does it save you the time and hassle of selling your vehicle privately, but it also provides much needed funds to charities raising money for a cause. Perhaps the biggest incentive among Americans is that giving a charitable car donation is a large tax incentive.

Tax laws for donated car write-offs have changed significantly throughout the years, due to greedy taxpayers who were claiming more credit then their vehicle was worth. Because of a large percentage of donors writing off the suggested retail price of their donation rather then the fair market value of the auto, tax laws were changed in 2005 and are far stricter.

The first important factor in charitable donation tax write-offs, that you must know, is that the tax deduction is no longer the fair market value of the vehicle. Your deduction will now be the charities selling price of the car. The charity is not required to tell you the estimated sales price prior to donating your vehicle. Once you have donated the vehicle, the charity is required to send you a sales receipt of the car within 30 days. This receipt will be the amount of your car donation write-off, and will be required to be attached to your tax return as supporting documentation.

Like any rule, there is always a short cut or exception to the rule. This IRS tax rule states that if the charity you have donated your car to is able to use the car as a “significant” work of charity, defined in the tax law, you are able to write-off the fair market value of the vehicle.

Understandably, car donations have gone down significantly within the past five years due to confusion in the new tax laws. What most people do not understand is that you must do your research. Find a charity that will be able to use your vehicle rather then sell it, and get the highest possible deduction from your donated car.