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Donating a Car in 2013 for Tax Deduction

How Does It Work?

Donating your car to charity can be a great way to get a tax deduction and feel good about at the same time.  However, the rules have changed over the years as some people tried to take advantage of this great system, and now IRS has tighten the rule.

It is your responsibility to research the charity organization before handling over the keys, and the organization is qualified to receive donations for tax deduction.  Find out the market value of your car, but you will only be able to deduct the actual amount the charity sells your car for.

It is also a good idea how your car will be used if they are not planning it to sell it.  Also, check which organization will actually receive the proceed from the sale and who will be benefit from the fund.

You can research any legitimate charity organization from this website: Charity Navigator

IRS Rules on Donation to Charity

Ok, here is the part that is a little more stringent than what it used to be.  You cannot simple write down the market value of your car as found on sites like KBB.  You can only deduct the amount that your car is actually sold for by the charity.

The charity that received your car must send you a deduction amount within 30 days or handing your car over, or within 30 days of it being sold if that applies.  It's your responsibility to contact charity if you don't receive the letter within the specified time.

If the deduction amount is higher than $500, the following information must be stated in the letter.

Your name and taxpayer identification number.
The vehicle identification number.
The date of the contribution.
And one of the following:

  • A charity statement verifying that no goods or services were provided in return for your car donation.
  • A description and estimate of the value of goods or services, if any, exchanged for your donation.
  • A statement that goods and services provided by the charity consisted entirely of intangible religious benefits (if applicable).

On the tax return, complete Form 8283 if your car donation deduction is more than $500. If your deduction is between $501 and $5,000, you must complete Section A. If your deduction is greater than $5,000, you must complete Section B. If you complete Section B, you must also obtain a written appraisal as documentation.

How Can I Get the Maximum Deduction

According to IRS, it's called "Significant intervening use".  It simply means that the charity organization used your donated car for the functions of of the organization instead of selling it within 30 days.  Let's say your car's fair market value is $2,000, and the charity used it for 5 months and sold if for $1,200.  In this case, you get to write-off the full $2,000 on your tax return.

You will, however, have to receive in writing from the charity that what the car was used for and how long, as well as the selling price.

So unless you car is worth a few hundred dollars, you should find an organization that will put your into good use.  That's will be the perfect win-win situation.

What to Watch Out For?

Many charity organizations do not have the resource to sell your car for the fair market value.  You know it takes time and effort to find a buyer that will actually pay a price close to the blue book value.  It's not like the charity organization will be spending a lot of time to negotiate with a whole lot of potential buyer.  So your $2,000 car may end up being sold for $500.

The laws regarding cancellation of plates vary state to state, but make sure to take if off the car before handing the car over as you should when you sell the car to someone else.  You don't want your plate to fall into a wrong hand and be used for illegal activities and so forth.

Donating a Car in 2013 for Tax Deduction Reviewed by Blogs on 12:52 AM Rating: 5

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