Do you have an old car that you want to donate car for tax credit? Well, it sounds good as you can get tax deduction and you have less burden because of it. Before you do it, you need to know the safe ways, as it is possible that some programs are fraud. This article will help and guide you to donate car for tax credit. Keep reading!
Steps to Stay Safe to Donate Car for Tax Credit
If you want to donate car for tax credit, you need to find a charity program that is generally safe. For the next, you can take some steps to prevent from anything bad that happens to your car after you give it away. Here they are:
- Be wary of organizations that sound too good to be true
- For example, if they promise you can deduct whatever you want from your taxes
- Get a receipt from a charity
- Remove your car’s license plate when you’re done driving
- File a transfer form to sign your certificate with your state’s transportation or motor vehicle agency
Tax Deduction: What to Know Before You Donate Car for Tax Credit
You all agree that the biggest benefits of donating your car is that you can get some pretty sweet tax breaks. However, it’s not as simple as turning the car over to a charity. Just like anything else the IRS controls, it will be deducting its value from your taxable income. Instead, you must meet certain criteria to deduct donations from the taxes. You can also get more info from the IRS guide to donate car for tax credit.
Itemize Your Taxes
You can claim a charitable deduction including to donate car for tax credit for cars only if you itemize your taxes. And unfortunately, most people are better off claiming standard deductions with the new tax law changes. So, your car donation may not benefit you at all at tax time.
How Does Tax Deduction Work When Donating a Car?
Donate car for tax credit means that the result in significant tax savings if you include it in your charitable contribution deduction. However, with a little planning, it will maximize the tax savings from your donation.
If you include it in your charitable contribution deduction, donating your car to charity can result in significant tax savings. The Internal Revenue Service (IRS) demands you to calculate your tax deduction in one of 2 ways. It depends on how the charity uses your donation. Here the two are:
- Discounts for cars sold by charity are limited to the sale price
- In all other cases, you can use the fair market value of the car
4 Simple Steps and Tips to Donate Car for Tax Credit
Here are 4 simple steps and tips you can follow to help you understand. If you understand it well, you can claim the tax deduction for your donated car on your tax return. Let’s check them out!
Step #1: Find Out How Much the Charity Car is selling
Use the price earned by the charity to sell your car as discounted amount. For example, your charity sells a car at auction for $3,000. In this case, your deduction is limited to $3,000. Yes, even though it’s fair market value is $4,500.
Now, how if the charity sells the car at a significant discount to an individual in need? Or, it keeps the car for its own internal use? Then, you can claim a deduction for its fair market value.
Just in case the charity sells your car for $500 or even less, you can deduct $500 or the fair market value of your car. For example, your car costs $650 but sells for $350. It means, you can deduct $500. Usually, charities will report your car sale price on Form 1098-C.
Step #2: Determine the Fair Market Value of the Car
IRS recommends that you use a reputable used car price guide if you want to estimate the fair market value of your car to calculate your deduction. Here, you need to consider consulting the Kelley Blue Book. Or, you can also read are cent copy online for example. It is good to check the details such as the private party prices for vehicle by make, model and overall condition.
Step #3: Claim the Tax Deduction
In order to claim a deduction for your donated car, you must have documentation of donate car for tax credit. At a minimum, the documentation you receive from the charity usually:
- Your name
- Vehicle identification number
- Your donation date
- A statement that describes each of the goods and services you receive
Once you get the document, you can report the amount of your deduction on Schedule A. You can only claim a deduction for your car donation if you itemize. So, the total of all your eligible expenses on Schedule A must exceed the standard deduction amount for your filing status.
Step #4: Additional Forms You Need
- Just in case your car donation deduction is more than $500, you will be required to complete Form 8283
- If it is between $501 and $5,000, you must complete Part A
- If it is greater than $5,000, you must complete Part B
If it is Part B, you must also obtain a written assessment as documentation