There are many good reasons to donate your car, including a possible tax deduction. Did you know that donating your old, clunky car to charity could get you a tax break? If you need to get rid of an old vehicle, are thinking of donating it, and want to know how tax deductions work when donating a car, we go over the details here.
How Much Is Your Car Worth?
To start, you need to determine how much your car is worth: not just its market value, but the price the charity you donated it to sell it for. You can use a price guide like the Kelley Blue Book to determine your car’s market value. You won’t have to do anything special to learn what the charity sold your vehicle for because they’ll send you a Form 1098-C that lists the sale price.
Once you have this info, you can determine the maximum amount you can deduct. The price the charity auctions your car for is the most crucial reference: if they sell it for less than $500, you can deduct $500 or your car’s market value, whichever amount is lower. If it sells for more, its sale price is the most you can deduct, even if its market value is higher.
Claim Your Deduction
To get a tax break for a car donation, you need documentation from the charity that states your name, your car’s ID number, the date of your donation, and a statement that lists any goods and services received in exchange for the donation, if any. Report this information on a Schedule A (Form 1040) and list your deduction amount.
Fill Out Additional Forms
You’re not done quite yet. There are a few other forms you need to fill out. For cars worth less than $500, you need to fill out Form 8283. For vehicles worth more than $500 but less than $5000, fill out Section A, and for ones worth more than $5000, fill out Section B. For cars worth more than $5000, you’ll also need to provide an on-paper appraisal.
Now that you know how tax deductions work when donating a car, you can get the most out of your donation! While it takes some effort, you can get a healthy tax break by being generous. We hope this guide has helped you understand how to claim your deduction correctly.