Sick of that old clunker sitting in your driveway? Donate it to charity. You may be able to get a valuable tax deduction for your donation. But, be aware that deducting car donations is a lot harder than it used to be. Even if you do get a deduction, it could end up being much smaller than you'd like.
Whenever you donate money or property to a tax-exempt charity, you can qualify for a tax deduction. However, such charitable contributions are deductible only if you itemize your personal deductions on Schedule A. If you don't itemize, you get no deduction. Unfortunately, if you're like most taxpayers, you don't itemize. You should itemize only if all your personal deductions exceed the standard deduction. A new tax law called the Tax Cuts Jobs Act (TCJA) took effect in 2018. The TCJA almost doubled the standard deduction to $12,000 for single taxpayers and $24,000 for married couples filing jointly. So you have to have a lot of personal deductions to itemize. Unfortunately, the TCJA eliminated or limited many personal deductions. Starting in 2018, they only include deductions for:
As a result of these changes, no more than five percent of taxpayers will be able to itemize during 2018 and later, compared with 30 percent in prior years. If you're one of the 95 percent of nonitemizers, you won't get a deduction for donating a car to charity. One way to increase your ability to itemize is to bunch your personal deductions. The idea is that you pile on your personal deductions in a single year, giving yourself the maximum personal deductions for that year. During the year you plan to itemize, do everything you can to make your personal deductions exceed your standard deduction. Pay every bill that will result in a personal deduction. Contribute as much money and property you can to charity.
Even if you do itemize your personal deductions, your deduction for a car donation could end up being much smaller than you expected. You can't simply deduct what you think the car is worth. Typically, charities do not keep donated cars. Instead, they sell them. Usually, they contract with a broker to manage the sale. The vehicle is either sold to the public at a wholesale auction or to a used car dealer for a flat rate – often as little as $75 per car. Either way, it usually sells for far less than its retail value. The charity must document the sales price by providing you with IRS Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes. The basic rule is that your charitable deduction is limited to the amount the charity receives when it (or a broker) sells the car, even if this is less than its retail value. Example: You own a ten-year-old car with a Blue Book value of $2,000. You give it to The Little Sisters of the Poor, a deserving tax-exempt charity. Accordingly, The Sisters contract with the Acme Auto Broker Company to sell the car at auction. The car sells for $500. Assuming you itemize, your deduction is limited to $500. This rule applies not only to cars, but also to SUVs, trucks, motorcycles, boats, airplanes, and any motor vehicle manufactured primarily for use on public roads. Here's one way to increase your deduction: Charities that sell donated vehicles themselves usually get more money than those that contract with brokers to sell them. Thus you'll get a larger deduction if the charity sells your car itself. Charities that conduct their own sales advertise this fact on their websites - the Salvation Army is one example. Try giving your vehicle to one of these charities.
There are three significant exceptions to the general rule limiting your deduction, which is tied non-profit organization's selling price of the vehicle. If one of these exceptions applies, you may deduct the vehicle's fair market value as shown in a used vehicle pricing guide, such as the Kelly Blue Book. (However, the value cannot exceed the private party sales price listed in the guide). Except where the car is an old clunker worth $500 or less, this will usually give you a larger deduction than using the actual selling price for the vehicle.
If you claim a deduction of $500 or less for a donated car, the car's valuation does not have to match the sales price the charity got for it. Instead, you may deduct the smaller of $500, or the vehicle's fair market value on the date of the donation. If you do this, be sure to get an acknowledgment of your donation from the charity. The letter of acknowledgment must include:
The charity can use IRS Form 1098-C for this purpose or they can give you any form of written acknowledgment with the required information. The acknowledgment letter can be a paper copy or electronic, such as an email addressed to you.
You may also deduct your car's fair market value at the time of the donation if the charity keeps the vehicle and regularly uses it as part of its normal activities. If you're relying on this exception, the charity must give you a written acknowledgment within 30 days of receiving the automobile that includes a statement that it intends to use the vehicle rather than sell it.
You can also deduct a car's fair market value at the time of the donation if the charity intends to give it to a needy person, or sells it directly to a needy person for a price well below fair market value. The vehicle can't be sold at an auction. For this exception to apply one of the charity's purposes must be to help the poor or underprivileged who need transportation. If you're relying on this exception, the charity must give you a written acknowledgment within 30 days of receiving the car donation. The acknowledgment should include a statement that the charity intends to give or sell the car to a needy person.