If you are a tax payer, then it makes sense to donate your old car rather than just scrap it because you can claim it against tax. In fact, even if you decide to sell it you should consider your net profit from selling it against your net tax gain by donating it. This net profit could depend upon what the charity does with your car: uses it or sells it.
You may be able to claim more in tax from your donation that you would get by selling it – the price an old car realizes when sold is almost always a good bit less than its market value. That difference might well make it worthwhile donating a car to charity rather than selling it. The main problem here is that you don’t know until you actually donate it or sell it, so you have a judgment to make.
In learning how to donate a car you will likely learn the benefit that your car could do for others. Perhaps that will be enough to sway you to the donation and see what happens, rather to selling it and seeing what happens. At least if things go badly with the amount you can set against your next tax return, you will always have the satisfaction of doing good for others. If the selling price goes badly you have no satisfaction at all.
You can also choose your own charity, so if you prefer one that helps disadvantaged children then you can donate your car to that. If you are religious, and would prefer to donate to your church, then you can also do that – or to an animal charity, environmental or any other you prefer.
How to Donate a Car: Choose Your Charity
When donating a car to charity first look around for a charity that suits you. You will find several online or you might have a favorite charity to which you could write or make a call. All that is required is that your charity is recognized and legally permitted to enable you to claim any donation against tax.
How to Donate a Car: Make the Donation
When you make the donation, the charity will arrange everything for you. You will have forms to complete to transfer the ownership of the car, and then it will towed away free of charge. The charity must then provide a written acknowledgement of how it uses the car.
How the car is used makes a big difference to what you can claim in your tax return. For example, if the charity simply sells it as it is when you donated it, you can claim no more than the sum it sold for. If they use it for themselves then you can claim its fair market value at the time it was donated. This is likely to be higher than the selling price, because old cars rarely sell for more than their market value!
If the charity enhance the car, such as giving it a respray, and then sells it, you can still only claim the fair market value at the time of donation. In this case, you cannot claim the selling price. There are several more rules regarding how much you can set against tax, although basically it is the fair market value of the car, unless they sell it unchanged, when it is the selling price.
How to Donate a Car: Claiming Your Tax Deduction
You should claim your tax deduction in Section A of your tax form 1040 (Gifts to Charity – Sections 16-19). The instructions with the form help you to do this. Although the charity must send you an acknowledgment of how the gift was used and any income received by selling the car, you need not include this with your tax return. It may be needed if your return is questioned to prove your claim.
You must understand the amount you are entitled to claim. And knowing how to donate a car to charity is one thing, but just as important is knowing how you can claim against tax. If you use a rule of thumb that you can claim the fair market value of your vehicle at the time of donation unless it is sold unchanged, then you should be accurate.
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