The Benefits of Donating Your Car to Charity

Everybody knows that if you donate a car to a charitable (non-profit) organization you can list it as a deduction on your taxes. What you may not know is that the rules have changed in recent years, making it more difficult to claim the value of such a contribution. And yet, if your old clunker is slated for the junk heap anyway, you might as well do something good for your fellow man and get some kind of tax break in exchange. Plus, there are other benefits to this type of beneficence. Here are just a couple of ways that donating a car can be to your advantage.

For one thing, you can support a charitable cause that you believe in. Whether the organization you donate to opts to use the vehicle, pass it along to an individual in need, or sell it in order to gain cash value that they can use for other necessities, you will have done something good for your fellow man (or animals, or the environment, or whatever type of charity you donate to). Of course, this will bring you no small measure of personal satisfaction, which most of us could use a little more of in our lives.

But let's get on to the real benefits that everyone wants to know about; helping other people and feeling good about it may be high on your priority list, but let's face it, so are your finances. And as long as you're doing something nice you may as well get something out of the deal. So here's the skinny on the tax situation. It used to be the case that you could donate a vehicle to the charitable institution of your choice, get a receipt (for your own records), and claim the fair market value of the vehicle on your tax return for the year, deducting the entire amount as a loss.

Sounds pretty awesome, right? It was, right up until a whole bunch of people got caught taking advantage of this good faith system by claiming that the cars they donated were worth a lot more than their actual value. It turns out the IRS does not like to be defrauded in this manner. Not surprisingly, they changed the rules and regulations pertaining to this particular deductible.

These days the easiest thing you can do is claim a flat rate of $500 in value for your donation, provided that the fair market value is at or above this amount (check Kelly Blue Book or www.kbb.com to find the number for your vehicle). Now, suppose that your donation value is either below or above this number; what then? If it's below, you can only claim the value of the car, whether that's $200, $350, or whatever. It it's above things get trickier. If, for example, you donate a Cooper BMW that's worth $5K and the charity keeps the car, you only get to deduct $500 (that is, if you get a receipt as proof of donation). Now, if they sell the car, you can claim the amount it sold for (with proper documentation). However, if it sells far below fair market value and you can prove that it sold at a major loss, you may still be able to claim the full amount. But it just might raise red flags with the IRS, prompting an audit.

There are other scenarios to consider, as well, but you will simply have to discuss it with your tax preparer to determine the exact benefit without making the whole situation more trouble than it's worth. Still, donating your car to charity is a noble and generous decision that could also be financially sound, depending on your situation. How beneficial it actually turns out to be is a matter of circumstance.