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September 19, 2021

Donating a vehicle to charity: What you need to know

Donate your car to charity. Get big tax deductions and help the
less fortunate at the same time. Everybody wins. At least, that’s
what the ads say.
Donate your car to charity. Get big tax deductions and help the less fortunate at the same time. Everybody wins. At least, that’s what the ads say.

The reality of donating your car to charity is often quite different. Most charities do not actually use the donated cars in their charitable activities. Instead, they use agents to sell the cars at auction. Selling at auction usually results in the charity receiving less than the “blue book” value, which is the value that most taxpayers claim as their tax deduction. The amount the charity receives is further reduced by the agent’s commission. A recent study by the General Accounting Office found that most charities actually received less than 5 percent of the value claimed by the donors on their tax returns.

If you still want to donate your car, here are some hints to help you get the most out of your generosity. First, verify that the organization is an approved tax-exempt charity. You can access IRS Publication 78 on the www.irs.gov Web site for an updated list. Only donations to approved charities are deductible. Second, find out if the charity intends to use the vehicle. If it will be sold, the charity will probably receive much less than the fair market value.

Third, do you itemize your deductions? If not, you won’t get any tax benefit from the donation. Fourth, determine the fair market value of your vehicle. The “blue book” value is the starting point. A vehicle in poor condition could be worth much less. If the vehicle is valued above $5,000, an independent appraisal is needed. Last, make sure you have proper documentation to substantiate your deduction. If you are audited, the IRS will probably question your valuation.

For assistance with any of your tax concerns, give our office a call.

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