It’s super easy to give a car to charity, if all you want to do is get rid of it. The National Kidney Foundation of Utah & Idaho has one of the longest running (since 1990) and most popular car donation programs in the country. You can find us on line at www.towKars.org or you can call us 9-5/M-F at 1-800-TOW-KARS (869-5277). We’ll tow away your heap, and help you maximize your tax benefit. Here’s the basic gist, but you should discuss these issues with your tax preparer before you donate you so understand your tax benefit. Also check out the IRS’s Publication 4303, a donor’s guide to vehicle donation here: https://www.irs.gov/pub/irs-pdf/p4303.pdf
In order to benefit, you Must Itemize Your Return
If you want to claim a car donation to reduce your federal income taxes, you must itemize your deductions.
Here’s how it works: Suppose you’re in the 28 percent tax bracket and the allowable deduction for the vehicle’s donation is $1,000. That will save you $280 in taxes. If you’re in the 15 percent tax bracket and you get that same $1,000 deduction, it will reduce your taxes by $150.
If the car donation is your only deduction, it’s likely that taking a standard deduction would save you thousands more dollars in taxes. The only way that donating a car nets you any tax benefit is if you have many deductions and if their total, including the car, exceeds the standard deduction. And remember, you can always donate as much as you want to charities, but the IRS limits how much you can claim on your tax return.
The 2017 Tax Bill and Car Donations
Taxpayers who are considering donating a car to charity might be wondering how the tax bill passed into law in December 2017 could affect their decision. To begin with, the bill, called the Tax Cuts and Jobs Act, lowered tax rates but also altered the previous income brackets. Beginning in 2018 you may find yourself in a new bracket, which might result in either lower or higher taxes, depending on your individual situation. And that means the tax benefit from a donation might be more or less advantageous.
Another important change is that the new law raises the standard deductions from $6,350 to $12,000 for individuals and married couples filing separately; from $9,350 to $18,000 for the head of a household; and from $12,700 to $24,000 for married couples filing jointly. This change likely means that fewer people will find it beneficial to itemize deductions.
“The vast majority of taxpayers are going to take the standard deduction,” says David L. Thompson, vice president of public policy for the National Council of Nonprofits. “That means most taxpayers have no incentive to give to charity. That’s a serious concern. We fully expect the doubling of the standard deduction to reduce giving by $13 [billion] to $20 billion a year.”
With these and other changes resulting from the revised tax laws, it’s more important than ever for consumers to consult with their financial adviser or tax preparer before making a decision about donating a car to charity.
The Charity Must Qualify
The National Kidney Foundation of Utah and Idaho is a qualified 501 (c)(3) charity. In order to claim your tax deduction, you should only donate to charities who qualify, like us. A qualified charity is one that the IRS recognizes as a 501(c)(3) organization.
To help you determine whether a charity is qualified, the easiest thing to do is call the IRS toll-free number: 877-829-5500.
A Key Concept: Fair Market Value
The IRS defines fair market value as “the price a willing buyer would pay and a willing seller would accept for the vehicle, when neither party is compelled to buy or sell and both parties have reasonable knowledge of the relevant facts.” In this scenario, neither the buyer nor the seller can be an auto dealer. Both must be private parties.
What complicates the matter for taxpayers is that under current IRS rules, you can only deduct a vehicle’s fair market value under four very specific conditions:
1. When a charity auctions your car for $500 or less, you can claim either the fair market value or $500, whichever is less.
2. When the charity intends to make “significant intervening use of the vehicle.” This means the charity will use the car in its work.
3. When the charity intends to make a “material improvement” to the vehicle, not just routine maintenance.
4. When the charity gives or sells the vehicle to a needy individual at a price significantly below fair market value.
Determining Fair Market Value
Vehicle values can be found in NADA, Blue Book, Edmund’s, Classified Ads. This can help you determine the car’s vehicle’s fair market value. Fair Market Value must take into consideration the car’s year, make and model, mileage and condition.
Note the caution from IRS Publication 4303: “If you use a vehicle pricing guide to determine fair market value, be sure that the sales price listed is for a vehicle that is the same make, model and year, sold in the same condition, and with the same or substantially similar options or accessories as your vehicle.”
However, Getting Fair Market Value Is Actually Pretty Rare
It’s not realistic to expect that your car will meet one of the stringent fair market value requirements. Only about 5 percent of donated vehicles are suitable for use by charity recipients. About a third of donated cars are junked, and the rest are auctioned off. So unless your car is in good or excellent condition, it will most likely be sold at auction or to an auto salvage yard. At that point your deduction is based on the car’s actual selling price — not your estimate of its fair market value. It is nearly impossible to gauge the actual selling price before you donate the car to Kidney Kars. It can take up to three years to sell a car.
The Tax Receipt and a Copy of the Title is Key
You need documentation. Whether the car is recycled, or auctioned off. IRS Publication 4303 has all the details. Be sure to keep all the papers or electronic files. You’ll need them at tax time.
If there’s a delay in getting the car sold, you can ask the IRS for a six-month extension to submit your return (should you need it). Your second option is to file the return on time without claiming the deduction for the qualified vehicle. When the charity finally sends your notification, you can file an amended return using form 1040X to claim the deduction. You’ll have to attach a copy of the notification to your 1040X.
You Can Always Sell Your Car Instead
Besides giving your car directly to a charity, there is another way your vehicle can help a charity and also maximize your tax benefits: You can sell the car yourself and donate the proceeds. By doing so, you might be able to generate more cash than if you let the charity sell it.
Getting rid of a junker does help the National Kidney Foundation of Utah carry out its mission. It will also make room in your garage for a new car :). As long as you’re focused on getting rid of a junker with minimal effort and you’d look at the tax deduction as a nice bonus, then donating your car is a great option!