Car Donations Tax

Have you ever considered car donation?  Maybe you have, and maybe you've vaguely heard a few things about how useful this practice can be for the purpose of saving you money on taxes.  It is not a bad idea.  In the year 2000, 733,000 Americans donated cars, and in doing so, saved a collective amount of $654 million dollars.  This leads out to an average of about $892 per person, though it's a little bit more complicated than that.  Regardless, it is an excellent way to make a bunch of money off of the donation of the car, and in some cases, it makes about as much sense in terms of tax incentive as actually SELLING the car.  My car, for example, is an old, beat-up Toyota Camry which can't possibly be valued at over $1000, so it generally wouldn't be a bad idea to donate this to a charity.  Here, we'll try and give you a basic idea of how it works, and who you can donate your car to.  So read on, if you care to know more.

What are the Car Donations Tax Benefits?

Basically, donating your car is a simple tax deduction.  If your car is valued at under $500, the valuation of your car is what the exemption is worth.  So if you donate, say, a REALLY crappy car, and it is valued according the Kelly Blue Book or whatever as being worth $350, you just provide documentation of that, and then that is how much will be deducted from your taxes the next year.  This valuation STAYS even if the charity you give it to ends up not being able to sell it for that price.  If your car is valued at over $500, however, you basically are given a tax exemption of the amount of money they make off of the car.  So you'll need to get a written acknowledgement of how much they made off of it for your tax return.  This is really as simple as it is.  Generally, you just need to donate the car to a charity, and then they sell it at an auction, and give you a receipt for how much they sold it for.  It's really not a bad way to save the money, and in the end, it may not be for all that much less than you would've sold it in the first place, AND you don't have to go through the work of actually selling it. 

Theoretically, you are supposed to see how much of the money from the car sale actually benefits the charity itself, because lately, charities have found that the overhead involved in selling the cars is actually not worth it.  So you will need to discuss this with your charity ahead of time.  Also, it's kind of not cool to give them a car that is totally broken down, because the repairs may end up being the thing that cost them a lot of money.  So you know, make sure it's a car that you COULD actually sell.  Otherwise, you may just end up being a burden on your charity.

That said, even though they are making the rules a little bit stricter, as a lot of people were abusing it for the purpose of using it as a tax shelter, there is still a decent amount of money to be saved.  And naturally, most people aren't going to donate something that they could sell and make significantly more on.  So you aren't seeing a ton of Corvettes going into these charities, but if it's a nice enough car, you can still make a lot of money off it.  

Where Can I Donate My Car?

This isn't too difficult to find, actually.  Since so many people are willing to donate cars, a lot of charities accept them.  They are, after all, not a bad way to make money.  So basically, you'll need to search for places in your area that accept car donations.  These can be any number of places, but often include kid's charities or... yeah, really anything.  A big one that has gotten kind of popular are the car donations to community colleges where students may be learning to be mechanics.  It's simple enough, you donate the car to them and then they use it to do repairs on and whatnot.  I'm not sure how the payment for the tax benefits really work here, since they keep the cars and whatnot, but if you asked them, I'm sure they'd be able to update you on all of that.  So that's a great place to start.

A note to be made:  if you DO donate your car, you are going to have to have at least some sort of written acknowledgement from the charity you donated to if the amount you wish to deduct is greater than $500, which is pretty much the case for everyone.  So yeah, basically I would make sure that you do that ahead of time so as not to screw yourself over.

Are There any Additional Benefits?

Sure.  I mean, you're giving something to a charity, which is never a bad thing.  The tax benefits only extend to the amount the charity makes off of your car, so naturally, there are limitations to what you will make off of this, but it's offered as an incentive towards car donation.  I would make sure the charity is equipped to sell your car, otherwise, it may be more of a burden.  But the nice thing about all of this is that you will be saving some serious money AND you'll be helping someone out.  And that's never a bad thing, especially when mixed together.  So call up some of the charities in your area and get that taken care of.  You'll feel better about yourself and your wallet in no time. Or, if not no time, then definitely on April 15th.