The 3 Requirements For Getting a Tax Deduction When You Donate a Car

If you've donated a car, you may qualify for an IRS deduction. There are three simple requirements that must be met to qualify for a tax deduction:
1) Deductions for donating a car must be itemized in your tax return. Use Schedule A of your 1040 tax form for your deductions and be sure to include information about the donated car. Remember that your deductions cannot be more than half of your adjusted gross income.
2) The charity that you've donated your car to must be eligible to receive your cash or non-cash donations. The best thing to do is visit the IRS website for the online version of Publication 78 -- "The Cumulative List of Organizations". You will find a comprehensive list of IRS recognized 501c3 organizations there.
It's highly recommended that you check the 501c3 status of the charity before you donate a car. Don't just assume that a charity is qualified just because they've said so. You can also call the IRS Division for Tax Exempt and Government Entities.
Anyone has the right to request documentation from the charity. You can request the charity provide you with a copy of their application for tax-exempt status, their determination letter and their most recent annual returns. While the charity can't charge you for this information, take note that they do have the right to charge money for making copies and any postage or shipping fees.
3) A car cannot be owned with the primary purpose of profiting from it. This means that car dealerships cannot get a tax deduction from donating a car to charity.
Planning on donating your car just for the tax deduction? Know the new rules!
The rules have changed with it comes to tax deductions for donating a car. Prior to 2005, you could donate a car to charity and claim the fair market value -- the actual sales price -- of the donated car as your tax deduction.
Now, whenever you donate your car, you'll be able to deduct no more than the amount that the donated car earned at the charity's auction, or $500, whichever amount is less. The standard amount that a donated car pulls in at auction is between $200 and $500. So, even if your donated car pulls in $600 at auction, your deduction can be no more than $500.
There are only two ways that you can still qualify for an IRS deduction based on the fair market value of the car donated.
The charity that you've donated your car to must prepare a statement that they intend to use the donated car for a specific purpose that is thoroughly explained. The charity can also state that they intend to give the donated car to an individual in need. The charity has the right to sell the donated car to a needy individual but the sales price must be well below market value.
The charity can also present you with a statement of their intent to make significant improvements to your donated used car. The explanation as to what these improvements are should be detailed and precise. There should also be a promise from the charity that they will not sell your donated vehicle until these improvements are completed.
Such statements or letters must also include your name, taxpayer ID, the VIN (Vehicle Identification Number) and the date that you donated your car. The charity also has permission to use Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, in lieu of the statement or letter.
The charity will also provide you with an acknowledgment of your donation, typically as Form 8283 -- Non-cash Charitable Contributions. The charity should have this acknowledgement to you within thirty days of your car donation and it's advisable to attach Form 8283 to your tax return.