Why Donating Your Car Could Contribute to Your Tax Deductions

Couple handing over keysAlthough 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.

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Charitable Sale

Keys of donated carsAnother 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.