Car Donations: Important Tax Information You Need to Know


If you have an old vehicle that you no longer want, it may be worthwhile to donate it to charity. In addition to getting rid of an eyesore, you can help someone in need while also reducing your tax burden for the year. What should you know if you are going to donate a car and take a tax write-off after doing so?

Make Sure You Donate to a 501(c)(3)

A 501(c)(3) is a nonprofit group that has registered with the IRS for tax exempt status. Therefore, the value of the car that you donate is eligible for tax deduction. If a group or charity does not have this designation, you may not be able to write-off the contribution. In some cases, you may be entitled to a deduction if the charity is in the process of applying for its tax exempt status.

What’s the Car’s Market Value?

You cannot deduct more than the car’s market value. For instance, if the car is worth $500, your deduction will be $500. If the car is worth $1,000, you can deduct up to $1,000. Assuming that the car is worth more than $500, you will need to get a receipt to verify the amount of your write-off. Without such documentation, the IRS could disqualify your donation or reduce it to $500. In the event that you believe your car is worth more than $5,000, you will need to get it appraised by an independent professional.

You Have to Itemize to Get the Benefit

You can only write-off charitable contributions if you itemize your deductions. Most people will take the standard deduction because at almost $6,000 and climbing based on inflation, it may be more than your other deductions. However, if your itemized deductions are worth more than the standard deduction, you may benefit from deducting your contribution.

There May Be Another Option

Instead of donating a car directly to charity, you could sell it first and then use that money for a charitable donation. This may be beneficial because you may get more for the car, and you may be able to deduct the entire amount without having to itemize. However, you still have to donate to a qualified charity to take the deduction, and you will still need to have a receipt or some other documentation to prove that you made the donation.

Giving to charity can help you clean out your garage and allow someone else to make good use of it. The resulting tax relief may help you save up enough money to make a down payment on your next car. Therefore, donating your vehicle to charity is something that you should strongly consider before selling or trading it in.