People often ask how much they can get in the form of tax deduction if they donate their car to charity. The amount you can claim on your tax depend upon two factors: the fair market value of your car and what charity does with the car.
The fair market value of your car is the amount you can sell at the time you donate the car, in its current condition without repair. To determine the fair market value of your car, you can use any of the most popular pricing guides, including Edmund’s Guide, NADA Guide, and the Kelley Blue Book. If you use Edmund’s Guide or Kelley Blue Book, you must begin with the private party values then adjust those values based on the condition and mileage of your car. Don’t use the values listed under Clean Retail or Retail to determine the fair market value of your car. These are the car’s values if it was purchased from a car dealer and the condition is excellent. It is very important that you properly determine which values to use according to the real condition of your car.
You can follow below guideline to determine the condition of your car.
1. Clean Retail or Excellent Condition means that the car has never had any repairs on its body and there is no rust. This is similar to its condition in the “show room”. If your car had several body work or damage, even it was completely repaired, your car is not in this condition.
2. Clean Trade-in or Good Condition means that the car has some minor scratches, little or no rust, no significant mechanical issues, good tires and so on. If your car is rusted, has a dent, or has a major problem like the engine knocks or the transmission slips, then it is not in this condition.
3. Average Trade-in or Fair Condition means that the car is in fair running condition but has some repairable mechanical issues, rust or damage. Almost all car donations fall into this condition.
4. Rough Trade-in or Poor Condition means that the car has serious mechanical issues, heavy rust or damage. If your car has a flood title or salvage title, it is in this condition.
Another thing that determines the amount you will get for your tax deduction is what the charity does with your car. In case the charity sells the car as-is, without making any repairs or improvements, the deduction of your tax depends on the amount they sell it. If the car is sold for more than $500, the amount you can deduct is the sale price. In this case, the charity has to provide you with IRS Form 1098-c. If the car is sold for less than $500, you can claim the fair market value up to $500.
If the charity makes major improvement before selling the car, you can claim the fair market value as long as it is not exceed the amount you paid for your car. In this case, the charity has to provide a statement to you, that they will make these improvements, what improvements are and that the car will not be sold until the improvements are done.
If the charity wants to keep your car and use it for their purposes, you can claim the fair market value as long as it is not exceed the amount you paid for your car. In this case, the charity has to give you a statement indicating their intention to use the car, how long they plan to use it and certifying that it will not be sold until they have completed that use.
If the charity wants to donate the car to a needy person, or sell it for much less than its fair market value, you can claim the fair market value as long as it is not exceed the amount you paid for your car. In this case, the charity has to provide you a statement indicating their intention and that the sale or gift directly furthers its mission.