Donating a car to charity can be a hassle-free way to get rid of a vehicle you no longer need. In addition, the Internal Revenue Service allows you to claim the donation on your income taxes as long as you give the vehicle to a qualified charitable organization. Knowing how donating a car will affect your taxes will help you decide if that is the best option for you.
Donating your car counts as a charitable donation. The IRS only allows you to deduct charitable donations on your income taxes if you forgo the standard deduction and claim the itemized deductions. If the value of your car donation and any other itemized deductions does not exceed the value of your standard deduction, donating the car will have no impact on your taxes because you will not be able to claim a deduction for the value of your car if you claim the standard deduction.
Valuing Your Car Donation
The IRS values your car differently if your charity sells the vehicle rather than uses the vehicle. If the charity keeps your vehicle, you can deduct the fair market value. You can also deduct the fair market value of your car if the charity intentionally sells it below market value to a person in need as part of the charity's work. However, if the charity sells the vehicle, you can only deduct the amount the car is sold for.
The tax savings you receive from donating your car to charity depends on your income tax rate. Because the federal government uses a progressive income tax structure, people pay different income tax rates depending on their taxable income and their filing status. Thus the amount of the deduction varies for a donated car. To find your savings, multiply the amount of the donation by your income tax rate. For example, if you claim a $9,200 deduction for your car and you fall in the 33 percent tax rate, multiply $9,200 by 0.33 to find that your donation saves you $3,036.
Additional Forms to File With Taxes
When you file your income taxes, you have to use Form 1040 for your tax return and Schedule A for your itemized deductions. On Schedule A, report the amount of your car donation on line 17. If your deduction for your donated car exceeds $500, you must attach Form 8283. For donations of more than $500 up to $5,000, complete Section A of Form 8283. For donations valued more than $5,000, complete Section B of Form 8283.
- Internal Revenue Service: Publication 4303
- Internal Revenue Service: Publication 526
- Internal Revenue Service: Schedule A Instructions
- U.S. Congress. "H.R.4520 - American Jobs Creation Act of 2004." Accessed Feb. 8, 2020.
- United Way of Rockland County. "Donate Your Old Car, Boat, or RV." Accessed March 18, 2020.
- Goodwill Vehicle Donations. "Accepted Vehicles." Accessed March 18, 2020.
- Salvation Army. "It's Never Been Easier to Donate Goods." Accessed March 18, 2020.
- Internal Revenue Service. "A Donor's Guide to Vehicle Donation." Pages 3–6. Accessed Feb. 8, 2020.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."