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How is your donated car valued?
You want your donated car to help a charity, and you think you could get a tax deduction on the gift.
Question is: How is the value of your donated car calculated?
Not sure? – read on…
While times are tough everywhere you look, always remember that there are individuals that could benefit from a donated car, giving them the means to get back on their feet. This is a driving force for many organizations, and while some cars are kept for use by the charity for operational needs, the end result is the same: your donation will help the less fortunate. As questions abound regarding the tax deduction of a donated car, there are several resources that can guide you through the process. Understanding the ins and outs of the donation requirements can ensure that your vehicle benefits everyone involved.
Tax Particulars Involving a Donated Car
The process involved with donating automobiles to charity has been amended in recent years. As many have learned, simply validating the car’s value through Kelley Blue Book and writing this amount off of your taxes will no long suffice. If you’re looking for the simple deduction, you can claim only $500 for your donated car. If your donation exceeds this amount, there is a fair amount of extra paperwork involved to maximize your deduction. The re-sale of the vehicle will also factor into the size of the write-off.
What if the charity involved uses the vehicle for operational needs for a few months before selling it? In most cases, you can still receive the tax credit value of the car before use. For example, if a truck you donated was worth $1,500 at the time of allocation, the charity delivered food for 3 months (putting mileage on the vehicle), and later sold it for $1,000, you would still get the full $1,500 in tax credit for the donation. However, in this case, you must get documentation from the organization validating this usage. This is also known as the “Intervening-Use Exception”.
What if the Donated Car Sells Below Value?
Many charities are in dire need of funds, and while they are always looking to generate as much revenue as possible for their cause, at times, selling quickly and below the auto’s value is unavoidable. Also, in some cases, the cars are sold to those in need at a discounted rate. In either scenario, the quick flipping of a donated car for less money than it’s worth will not affect your tax deduction negatively.
Case in point: Let’s say you donate a sedan to a local charity, and they sell it to an underprivileged family. The vehicle is worth $1,200 but they sell it for $800. You will still get $1,200 in deductions, but there is an important element at play in this scenario. The IRS discovered that many charities were selling cars at auction below market value, and reporting these sales as sales to charity beneficiaries. If this occurs, you can count on the IRS completely voiding your entire deduction. This shows the importance of understanding your charity’s validity and intentions.
Donating a vehicle to a charitable organization can benefit everyone involved, but it’s important that you validate the charity’s practices, and get the proper documentation. Whether the car is set for auction, designated for charity use, or sold to those in need at a discounted rate, the tax benefit can be the same provided that you take care in following the IRS rules closely. In doing so, you ensure that you are getting properly compensated for your donation, and that the donated car is being used for what you intended: to help those in need.
Rest assured, your donated car will be welcomed by a charity.