Many charitable organizations benefit greatly when community members choose to donate their vehicle to further the organization’s goals or boost its financial health. However, vehicle donation isn’t as cut and dry as simply handing over the keys. When you plan on donating your car, truck, boat, or airplane to a charity, you may be entitled to a tax deduction. But the details on this process change depending on how your vehicle will be used.
Often, a charity will sell donated cars to a third party in order to raise funds. When this is the case, the donor will need to obtain a written statement from the charity. This statement should contain the donor’s name, the charity’s tax identification numbers, and the vehicle identification number (VIN). This information must be included on a 1098-C form and attached to your federal tax return when claiming a deduction for your donated vehicle. When a car is sold to another party to raise money for the charity, your tax deduction will be limited to the amount of money the charity receives for your car.
Charities may alternatively use your donated vehicle for a more direct purpose, such as furthering the organization’s regular activities and efforts, or selling/giving it to a needy individual as part of the services provided by the charity. When your car is used for this purpose, your tax deduction will be based on the fair market value of the vehicle.
Special steps and limitations apply to vehicles valued at more than $5,000. To ensure you have filed all of the appropriate forms to deduct your vehicle donation on your tax return, you can always talk our tax professionals. At Taxation Solutions, Inc., we are here to answer your tax questions large and small. And don’t forget, it’s also a good idea to research charities and start a dialogue with a representative to establish how they will use your vehicle prior to making the donation.