10 Factors Affecting the Tax Deduction Value of your Car Donation
1. Fair Market Value
If you donate a car to a qualified charity as defined by the IRS,
the value of your donation is usually the amount of the fair market
value of the car. Fair market value is the normal price at which
property would be exchanged between a buyer and a seller, and both
having reasonable knowledge of all the relevant facts.
2. Take the Condition of the Vehicle into Account
Your accountant should help you in deciding the best way to value
your car donation, but you the donor, and not the recipient charity,
are required by the IRS to be the sole party responsible for determining
what the IRS calls the "fair market value" of your car
donation, taking into full consideration its condition at the time
of donation. But when making car donations for charity, it is very
important point to be accurate and fair in assigning a value to
your vehicle, and to not inflate the value you claim as a tax deduction.
The organization receiving the automobile must agree with your value
and sign an acknowledgement to this effect.
3. Get a Tax Receipt for Your Automobile Donation
If you donate a car to a charitable organization and wish to claim
a tax deduction for your gift, you must determine its fair market
value. The fair market value of your vehicle cannot be determined
by a charity, the IRS considers that to be a "conflict of interest."
A charity´s tax receipt for car donations is, however, proof
that you made the donation. If the vehicle has a value of $5,000
or more, then a certified vehicle appraiser must determine the vehicle´s
value.
4. Get a Receipt for Your Donation
If you donate a car, boat, truck or other vehicle to a charity and
wish to claim a tax deduction for your gift, you must determine
its fair market value. The fair market value of your vehicle cannot
be determined by a charity, the IRS considers that to be a "conflict
of interest." A charity´s tax receipt or acknowledgement
is proof that you made the donation and of the value. If the vehicle
has a value of $5,000 or more, then a vehicle appraiser should determine
the value of the vehicle.
5. Fair Market Value is Not Always the "Blue Book"
Value
Some have mistakenly claimed that individuals can deduct the full
value of their cars as listed in a used car guide (such as “blue
book” value). A used car guide may be a good starting point
to value your car, but you should exercise caution. Other factors
have to be taken into account such as the condition of the vehicle
and what repairs may need to be made to make the car ready for sale.
The IRS will only allow a deduction for the fair market value of
the car, which may be substantially less than the “blue book”
value. You can use these guides as a starting point in how to find
a car´s value, but if you are planning to claim tax deductions
on car donations, ou need to be accurate in making car donation
valuations.
6. IRS Car Donation Publications
When you have an automobile to donate, be sure to use the legitimate
fair market value of the vehicle. This is one of the most important
car donation tips, one of the car donation basics. Here is an excerpt
from the IRS Publication 561 that explains how to obtain the fair
market value of your car donation:
(Taken from IRS publication 561)
"If you contribute a car, boat, or aircraft to a charitable
organization, you must determine its fair market value."
"Certain commercial firms and trade organizations publish
guides, commonly called "blue books," containing complete
dealer sale prices or dealer average prices for recent model years.
The guides may be published monthly or seasonally, and for different
regions of the country. These guides also provide estimates for
adjusting for unusual equipment, unusual mileage, and physical
condition. The prices are not "official" and these publications
are not considered an appraisal of any specific donated property.
But they do provide clues for making an appraisal and suggest
relative prices for comparison with current sales and offerings
in your area."
"Example. You donate your car to a local high school
for use by their students studying automobile repair. Your credit
union told you that the "blue book" value of the car
is $1,600. However, your car needs extensive repairs and, after
some checking, you find that you could sell it for $750. You can
deduct $750, the true fair market value of the car, as a charitable
contribution."
7. If the Car Donation Value is Over $5,000, Get an Appraisal
If your automobile is valued at more than $5,000 then you will need
an appraisal of the vehicle for tax purposes. Most charities can
provide you with all the necessary documentation to properly claim
your tax deduction without any cost to you. It is important to get
accurate donation valuations to ensure your donation deduction isnt
rejected.
8. Kelly Blue Book is a Good Place To Start
The Kelley Blue Book can help you determine your vehicle´s
value when you are considering donating cars. In fact, a good car
donation charity should provide a link from their website right
to the KBB guide itself. It is a valuable first step in learning
how to calculate value on vehicles.
Start by logging on to http://www.kbb.com.
[Click on: “Used cars” at top, and select the year,
make and exact model of your vehicle, then press “GO”.
Select "Private Party Value."]
You also need to fill in the exact mileage on the car and the zip
code in which you will be stating that you live on your tax return.
9. Vehicle Donation Valuations
The fair market value of cars, trucks and other vehicles areaffected
by a number of factors. To help further define your specific vehicle´s
value, make sure you accurately select the options on your vehicle.
These could include a sunroof, leather interior, power windows and
door locks, etc. Make sure you accurately select the options on
your vehicle. These could include a sunroof, leather interior, power
windows and door locks, etc. Another good way to find out the value
of your vehicle donation, is to check local newspaper ads for a
similar make and model car with similar wear and tear.
10. What about Classic Cars and Collector´s Cars?
When donating a custom, collector car, the rule of thumb as far
as the IRS is concerned, is still the same -- that is, that a donor
may deduct up to the fair market value of the vehicle. In the case
of a collector´s item rather than a standard vehicle, that
is somewhat harder to determine. But they would still want you to
come up with a fair market value for the car, rather than just deducting
what you´ve put into it. The IRS defines fair market value
as "...the price a willing buyer would pay and a willing seller
would accept for the car, when neither party is compelled to buy
or sell, and both parties have reasonable knowledge of the relevant
facts."
Obviously, the market for collector´s cars is smaller than
for regular cars. There is a certain segment of the population that
understands and appreciates the value of a car like yours, and might
be willing to pay you what you think it´s worth. But others
would not. So you need some legitmate way to document how you came
up with the figure.
In any event, if you think the car is worth more than $5000, and
want to take that amount or more as a deduction, a professional
appraisal is needed. The appraiser has to sign off on your Form
8283, which is the form you submit with your tax return when you
donate a car.
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