What once was an easy way for some taxpayers to get a big deduction on their tax returns by donating an old car has seen some significant changes for the current tax year. Changes in the IRS tax code greatly affects the amount of any deduction today.
While you can still give away your car and get a tax deduction, the limit is now set at $500 in most cases. To get a much larger deduction is where things have really changed.
If you give away a car, truck, or even a boat or airplane that is currently valued at $7000, you can not deduct $7000 on your taxes unless the charity sells it for that price. If they get $1500 for it, then that is the amount you can deduct.
In addition, you only have 30 days in which to get an IRS substantiation form from the charity when they sell the car, and it is your responsibility to get the receipt. The form is then included in your tax return when you go to file your taxes.
Why the changes to car donations in the tax code? It is mainly due to some individuals claiming their vehicles were worth far more than they really were. This got lawmakers attention and they changed the law to try an eliminate the abuse.
The big issue is in cases that the charity does not sell your donated vehicle right away, but uses it themselves in the course of their normal day to day operations. Examples would be like using it to take someone to medical appointments, or perhaps delivering food, clothes and other items to individuals or food pantries, etc.
Since this use would further reduce the value of the vehicle when the organization sold it, the IRS says you can then claim the higher value of the vehicle due to what they classify “significant intervening use”.
Before donating any vehicle that you plan on taking a tax deduction for, call your tax advisor first. Finally, check that the organization you are donating to is accepted as a tax qualified charity. The IRS has tried to make this part simple by having a directory list that you can check to make sure it is on the list. IRS.gov has everything you need to know.
