When you have an old or surplus vehicle, donating it to charity is a great way to get it off your hands and to help out a worthy organization. As a bonus, you also get to take a major tax deduction. But, before you donate, it’s important to know the IRS’s rules for deducting vehicle donations on your tax return. In most cases, you will NOT be able to deduct the fair market value (FMV) of the vehicle.
Under the majority of circumstances, your tax deduction for a donated vehicle is limited to the actual sales price the charity collects when they sell the vehicle. Because many charities immediately resell donated vehicles to a wholesaler or other dealer, they often collect far less than FMV. And that actual price is what you are allowed to deduct on your tax return, unless:
- The charitable organization itself uses the vehicle in its work, such as to deliver meals or provide transportation services.
- The charity makes substantial improvements to the vehicle that increase its value.
- The charitable organization sells the vehicle for under FMV to an underprivileged individual as part of the charity’s work with the needy.
Under those three circumstances, you may be allowed to claim the FMV of the donation, so make sure you know how the charity plans to use your vehicle before donating and ensure that all documentation and tax forms are completed correctly.
If you have questions about vehicle donations and your taxes, Taxation Solutions, Inc. is happy to help. Call our professionals with your questions, and we’ll put our 40+ years of tax help expertise to work for you.