- Making a contribution to a charity is helpful to you and the charity, since the organization needs the item and you can use the tax deduction. Donation is acceptable to the IRS, but the donor must follow the guidelines and complete forms as necessary to avoid errors and audits. You must make a donation to a qualified organization, not an individual, to use the donation to reduce taxes, and you must meet qualifications as well.
- Make certain that the charity is acceptable to the IRS, and that your deduction qualifies before you donate. You are limited to a maximum of 50 percent of your adjusted gross income for donations. See Publications 526 and 4303 for limitations for donation of a car. Inventory of a car dealer is not a qualified deduction.
What the charity does with your vehicle may determine the amount of your deduction. If the organization sells your car, you are sometimes limited to a deduction of the gross proceeds or price of the sale. Exceptions to this rule exist, including intervening use by the charity, material improvement by the charity, or sale to a needy client. - Cars, boats and airplanes require determination of fair market value, reports Publication 17 from the IRS. You can use the Kelley Blue Book or Edmunds.com for estimating fair market value on a vehicle. Fair market value for the IRS is the price a willing buyer and willing seller would reach with knowledge of the facts and with no forced purchase or sale. Fair market value of your vehicle should consider condition, and you may decrease the book estimates for condition issues. Review Publication 561 from the IRS for extensive details for determining fair market value.
Fair market valuation and calculations are important records to keep, since inflating the value of a donation is one of the areas of interest to the IRS investigators and auditors. - Reviewing the Kelley Blue Book or Edmunds.com is not an appraisal of your car. If you plan to deduct a charitable contribution greater than $5,000, you will need an appraisal to comply with IRS regulations. You must complete Form 8283 for a charitable contribution of this size, and someone from the organization must sign Section B. If the charitable organization sells your item within 3 years, you may receive a Form 8282, Donee Information Return, since the organization must send you a copy.
- If the fair market value of the car is more than $500, you must get an acknowledgment for the donation. The acknowledgment must be in writing and must include identification of the item and the charitable organization, the date, where and when you got the car, and whether you received anything in return from the organization.
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