Although you need to calculate your deduction based on the Internal Revenue Service’s recommendation, car donations for charities serve as a good way to reduce your taxable income.
Car donors should also choose their preferred charitable organization, particularly those that are categorized by the IRS as a 501(c)(3) institution. Otherwise, you won’t be eligible for tax incentives.
Fair Market Value
One way to determine your tax deductions involves calculating the vehicle’s fair market value. You should use a reliable price guide for second-hand cars, such as the Kelley Blue Book. This only takes a few minutes by browsing through several online cost estimators.
According to the IRS, fair market value refers to the price of a car that a person is willing to sell or buy depending on their position on a deal. Make sure that your car is in good condition to fetch for a reasonable value. Otherwise, it may just end up as scrap metal at a junk shop.
Another way to calculate your deductions will require you to know the charity’s sale price for your vehicle. In case they sold your old car for $400, yet it has a fair market value of $700, you can claim $500.
This falls under the IRS rule that allows donors to collect their car’s fair market value or $500, whichever is less, when the charity sells their vehicle for $500 or below. On the other hand, you can file for a deduction at the fair market value if the charity keeps the car for their use.
Maximizing your tax savings from a car donation entails certain requirements, but the benefits of accomplishing them should outweigh the spent time and effort. When choosing a charitable group, pick one that offers a free pick-up service from your home for added convenience.