Donating your used car can save you the hassle of selling it yourself, while potentially giving you a tax break. However, if you want to claim the largest tax break for your used car donation, keep in mind: not all charities are created equal.
Often, charities auction or sell any used vehicle donations they get to raise money to fund their programs. If your chosen charities do this, it could cost you on your taxes. That's because when the charity sells the car, you're limited to deducting whatever the charity gets for it, even if it's drastically less than fair market value. For example, if the charity sells your car for $2,000, that's all you get even if an official used-car value guide says the car's worth more.
Fair Market Value
You can deduct the fair market value of your used car when you donate it to a charity that puts it to use for its purposes. For example, if you donate a used truck to a charity that builds homes for impoverished families, and the charity uses it to haul construction materials, that counts as use by the charity. You can also write off the fair market value if the charity sells it to a family in need at a reduced price. For example, say your old van is worth $6,000 and you donate it to a charity that helps single-parent families. If the charity sells it to a single mom for $1,000, you can still write off the $6,000, as long as it's fair market value.
Get That Receipt
Without proof of your good deeds, Uncle Sam's not going to let you take a tax break. You need to get a receipt from the charity documenting your vehicle donation. The receipt must include the name of the charity, the date of the donation, whether you received anything in return for the donation, and either the amount the car sold for or a statement that the charity put it to good use. If you're claiming a deduction of more than $5,000, you also need a professional appraisal of the car.
As if you hadn't cleared enough hurdles, there's one more when you file your taxes: itemizing. If you don't give up your standard deduction, you can't claim your car donation. When you fill out Schedule A, you also have to include Form 8283 if your car was worth more than $500. If it's worth between $500 and $5,000, complete Section A. If it's worth more than $5,000, complete Section B.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."