This page is being updated due to new regulations.
See IRS Tax Regulations for more info
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.