The Internal Revenue Service allows a tax deduction for individuals who donate qualified vehicles to qualified charitable organizations. A qualified vehicle is a motor vehicle for use on public streets, roads and highways, an airplane or a boat. The donor should ensure that the benefiting charity is listed with the IRS as a qualified charitable organization listed in Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986.
Tax Deduction Eligibility
Taxpayers who itemize deductions on Schedule A of Form 1040 are eligible to deduct a car donated to a qualified charity. Eligible taxpayers may take charitable contribution deductions of up to 50 percent of adjusted gross income.
Amount of Deduction
Usually, a charity immediately sells donated vehicles. The taxpayer’s deduction is limited to the gross proceeds received by the charity at the time of sale. If the charity intends to keep the vehicle for use in operations, make material improvements to it or sell the vehice to a needy individual for less than fair value, the donor may deduct the fair market value of the vehicle.
Donors should ensure that they receive written acknowledgment of their vehicle donation. Charities use Form 1098-C to report the donation to the IRS and to the donating individual. Among other things, this form should have the taxpayer’s name, tax identification number and date of donation. If the charity sold the vehicle, the form should include the date of sale, gross proceeds of vehicle sale and a statement verifying that the vehicle was sold in an arm's length transaction between unrelated parties. The donor must also have a statement from the charity that no goods or services were provided in exchange for the vehicle. If goods and services other than non-tangible religious benefits were provided in exchange for the donation, the charity must give an estimate of the goods' and/or services' value.
The United States federal income tax is a progressive tax in which individuals who have higher incomes are taxed at a higher rate than those with lower incomes. Therefore, high income taxpayers eligible to itemize deductions will receive a higher tax savings than the same low income tax payers. Tax savings will also vary based on the many factors that affect an individual’s tax return.
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