There are perks to donating that outdated car languishing in your driveway: The charity often picks up the car for free, and you get to support a worthy cause. And with a little work, your donation could also yield a sizable tax deduction. To maximize the tax benefits, consider these tips.
Pick the right charity
To claim a deduction, you must donate your vehicle to a “qualified” organization. This typically includes 501(c)(3) organizations and other religious or educational charities. Confirm a charity’s status with the IRS’ Exempt Organizations Select Check.
Research how the charity uses cars
This determines your deduction. Generally, if the charity:
- Keeps the car: You deduct the car’s fair market value, the amount it would sell for on the open market. Pricing guides from Kelley Blue Book or Edmunds can help you estimate this figure, but be sure to account for your car’s condition.
- Sells the car for more than $500: Your deduction is limited to the proceeds from the sale. If your car is worth $3,000 but the charity gets only $2,500, that’s your deduction.
- Sells the vehicle for less than $500: You deduct $500 or the car’s market value, if it’s less than $500. So if your car is worth $450 but sells for $350, you can deduct $450. If the car is worth $800 but sells for $400, you can deduct $500.
Itemize tax deductions
To claim charitable contributions, including your donated vehicle, you must itemize deductions. You can donate your car without itemizing, but you can’t claim a deduction for your car and take the standard deduction, a set amount based on your filing status.
Say your car earns a $3,000 deduction. You’d choose between taking the standard deduction — $6,350 for single tax filers in 2017 — or itemizing. If your deductions, including the $3,000 deduction for the car, total more than the standard deduction, you should probably itemize. But if you have no other deductions, you’d be better off with the standard deduction. Ask a tax professional what’s best for you.
Keep good records
In general, you must retain documents from the charity that include specific details about your donation, the car’s value and its subsequent sale. Without this information, you can’t deduct more than $500. Other restrictions may apply, so be sure to consult the IRS’ guide to vehicle donation.
Claiming a vehicle donation deduction may require extra paperwork, but these tips will help you maximize its value while making a meaningful contribution to your community and more room in your driveway.
Nicole Arata is a staff writer at NerdWallet, a personal finance website. Email: [email protected].
This article was written by NerdWallet and was originally published by USA Today.