There are no tax benefits for simply gifting a car to a friend or family member. However, there are definite benefits for gifting, or donating, a car to a charitable, nonprofit organization. You may not get much on a trade-in or even selling your old car outright, but giving your car to a nonprofit can mean huge benefits on your annual tax return.
Gifting Your Car
The donation of your vehicle to a nonprofit organization is a legal tax deduction. Consider churches, schools, hospitals, human rights groups, animal rights groups, child care centers, museums or zoos as possible choices. Just remember it must be a tax exempt, nonprofit organization. Another alternative is a nonprofit organization that will donate cars to low-income individuals. One well-known organization that does this is Charity Cars. They will arrange for a free pickup in most instances.
Fair Market Price
The amount you may take as a tax deduction on your annual tax return is the fair market value. Look up the value of your car in the Kelly Blue Book. You need to enter the year, make and model of your vehicle to determine its value. The mileage on your car will also be a factor in the fair market value. Make sure you get a receipt for your vehicle for your tax records. It is your responsibility to determine the fair market value, not the charitable organization's.
To receive a tax deduction for your gifted car, you must itemize your deductions. The sum of your itemized deductions will be reported on the 1040 federal income tax form. Complete the Schedule A form, which is for itemized deductions. Locate the "Gifts for Charity" section on the Schedule A form. There is a line entitled "gifts other than by cash or check". This is where you will list the fair market value of your gifted car. This amount is your tax benefit for gifting your vehicle. You will have this amount deducted from your taxable income when it is transferred to your 1040 form.
When the fair market value of your gifted car is more than $500, you must complete a form 8283. This form must be completed and included with your income tax return if any charitable contribution, in itself, is more than $500.
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