Donating a car has more to it than charity – it means that you are about to take your first step towards availing a car donation tax deduction for the financial year that is taxable to you. In most cases, it could be simple; however, the tax payer’s situation determines how effectively the deduction can be utilized.
How does car donation tax deduction work?
Donating a car or any other vehicle to a charitable or non-profit organization is tax deductible as donating any other item of value. It should create a tax deduction equivalent to its commercial value. However, the actual effect of this donation on your tax is based on the following factors namely:
- The tax bracket that you belong to
- The value of the donated car or vehicle
The tax bracket that you belong to depends on your total taxable income for the financial year. However, irrespective of your tax bracket, your car donation tax deduction is definitely going to cause an impact on your total tax payable.
The value of the donated car or vehicle is derived from the gross proceeds raised from the sale of the donated car or vehicle. Some important things to be considered while donating your car or vehicle for availing car donation tax deduction are:
- Ensure that you donate your car or vehicle to a qualified organization or charity. As per IRS definition, qualified organizations or charities include nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals.
- Ensure that you receive a donation receipt containing all relevant donor information, description of the donated vehicle, name and tax ID number of the organization receiving your donation proceeds. This receipt will serve as your official tax receipt if the gross proceed for your car or vehicle is less tha $500. If it is more than $500, you should receive a supplemental receipt containing the actual sale price, your Social security number and all other information that is required for your car donation tax deduction.
- Another most important and last step towards the car donation tax deducting is to file an itemized tax return. These details should be listed on Schedule A of Form 1040. In case the total deduction claimed is greater than $500, Form 8283 must also be filled completely and enclosed along with it.
The following IRS resources could be useful in guiding you to avail your car donation tax deduction:
http://www.irs.gov/pub/irs-pdf/p4303.pdf
http://www.irs.gov/pub/irs-pdf/i8283.pdf
http://www.irs.gov/pub/irs-pdf/p561.pdf
