Car donation tax deduction in the wake of tougher IRS laws PDF Print E-mail
Share/Save/Bookmark

Millions of Americans donate their used, aging cars to charitable organizations simply because donating is so much easier than selling it. The biggest incentive, however, is the tax deduction one gets on car donations. Rules pertaining to car donation tax deduction are not very complicated. However, IRS decided to tighten its rules when people started deducting the suggested retail price instead of the fair market value that resulted in huge losses to the government in terms of lost tax revenue.

In the past, even the charities were not making much money since middlemen who managed the programs took away a large chunk of the resale cost. The IRS came with a new set of rules in 2005 that ensured that the deduction was limited to the charity's actual selling price if the donated car was valued at more than $500. The new car donation tax deduction laws also necessitate donors to furnish a statement of sale while filing tax return to get the deduction.

Now if you are wondering whether it would make sense to donate your higher-value used car, then the answer is YES! You can still deduct full market value of your automobile despite stringent car donation tax deduction laws if the charity decides to use it to further its cause. For instance, an organization may decide to auction off a car that is not really roadworthy in order to pay for fixing cars that belong to financially challenged families. In this case, you as a donor need to determine the fair market value of your vehicle by referring to Blue Book or consulting an expert.

Now that you know how to go about your car donation, please remember that you cannot benefit from a car donation unless you itemize your taxes. You may consult a certified accountant to decide if car donation would be the right choice for you in the wake of present car donation tax deduction laws.