DONATING A CAR?

Donating a car to a registered non-profit is a generous thing to do, but the tax benefits may not be what you are hoping for.

In the past, taxpayers could donate an old car and claim the fair market value of the car as a charitable deduction, but unfortunately, too many people inflated the fair market value and the IRS got wise to the abuse and changed the rules.

Now, taxpayers can only deduct the value that the non-profit receives from the car. Here's an example of what I mean:

Bob gives his car to a non-profit after-school program. They decide to use the car as a raffle prize and sell tickets for $25 a piece. They sell 25 tickets for a total of $625. Bob is allowed to deduct $625 on his schedule A under charitable contributions. Is Bob happy about this? No, because Bob's car was listed in the Kelley Blue Book as being valued at $4,000. Bob just got jipped, for being a good guy! Not cool!

There are exceptions though. Let's say that Bob donates his car to a non-profit that assists victims of domestic violence. The organization decides to give the car to a woman staying in their shelter who has left an abusive spouse and needs a car to support her children. If this is the case, the non-profit can write a letter explaining how the car was used and why it was given away or sold below fair market value.

Another, and perhaps, better option, is to sell the car yourself, and then donate the proceeds to your favorite charity, that way you can deduct the full amount as a cash donation. As the former Program Director at a tiny little non-profit, I can tell you cash donations are always greatly appreciated.

As with anything, make sure you keep good records, the organization is required to send you a letter acknowledging your gift and providing you with their IRS identification number.

For questions on how donations can help reduce your taxable income, just drop me an email!

Jen Solis
jen@commonsensetaxprep.com
COMMON SENSE TAX PREP