Looking For A Good Tax Break Donate Your Car To Charity

Alright, that old rattletrap, rusting buggy yet masquerading as a car has been taking up space in your driveway for much too long. Its become part of the neighborhood landscape. Youve been able to overlook it, but your neighbors are growing a tiny upset. Youve bitten the bullet and realize the time has come to profit rid of it, but how?

Why not contact a charity to see if they are interested taking the car as a donation? Not only is giving your car away to a charity good for deposit in your karma bank, when tax time rolls around, that donation can help save some of your cold hard cash in the bank as well by allowing you to take a potentially sizable deduction. If you ask around, youll locate numerous charities that have established programs for taking vehicles as donations.

As you might expect with the IRS, there are some tricky rules. Giving a car away to charity for a tax crack is not as easy as it used to be. The old tax laws allowed you to write off the fair market value of any car given to charity. Fair market value was clear by auto industry standard review services, like the Kelly Blue Book, so if the Blue Book value of your car was $2,000, you got to write that whole amount off when tax time arrived. That system was fraught with abuse, however, with people claiming inflated donation values of $654 million in one year alone. Therefore, the law changed in 2005, and the IRS now places some limitations on the way donation deductions are claimed.

The basic rule is that IRS places a hat upon vehicle donation deductions of $500. If your donation is worth more than that, then you will be required to meet a few criteria before you can affirmation your deduction. First, you need to know how the charity is using your car. If they take if from you and sell it, then the price they sell it for is the amount you can allegation as a deduction, even if it is less than the value of the car. If the charity sells your car for more than it is worth, you can only affirmation a deduction up to the fair market value of the vehicle.

There are a few exceptions. If the charity decides to give the car away to a destitute person, or if they sell the car to a needy person for far under the fair market value, then in most cases you can affirmation the actual worth of your car as your deduction. Also, under the Intervening Use Exception, if the charity uses your car for awhile before selling it, and then sells it for below the fair market value, you can affirmation the value of your car at the time of the donation as your deduction, since their use of the car lowered the value.

However, if the charity makes improvements to the car, increasing its value, and later sells it for more than it was worth when you donated it, you can yet only affirmation the fair market value of the vehicle at the time of donation. Whichever circumstance applies to you, the charity should inform you in writing within 30 days of receipt of the car of their intentions for the car and the donation value. If they sell the car, they must inform you within 30 days in writing of the sale price.

Of course, deductions are not subtracted directly from your tax bill, but rather permit you to reduce your tax bill by a percentage. Exactly how much a deduction will take off your tax bill depends upon your income, your tax bracket and how you file.