Whenever we talk about donating a car for the tax benefit purposes, one can easily relate this contrivance with United States’ tax system. So this particular article is also targeting our US viewers who are pretty much confused on whether to donate a car to a charity for the purpose of tax deductions or not.
Firstly one should do the charity for the sake of social wellness only. However, there is nothing wrong in doing two good things at a time. But before proceeding on the topic, we should look at the background of the whole ‘tax saving method via car donation’. Prior to 2004, donating a car to charity houses was a popular move among taxpayers. People would easily get a thousands of dollars worth of tax deductions irrespective of the fact whether the car ended up enticing for the charity at an auction or sale. Latterly Congress put a stop to the whole manipulative act by passing the American Jobs Creation Act of 2004, restricting the deduction one could take for a donated vehicle includes car, truck, boat, etc. actually, worth more than $500. Prior to the act, taxpayers use to deduct the declared fair market value of the vehicle. But the act ordered the deduction be determined by the accurate amount collected for the charity and documented via receipt from the charity to the donor.
Nowadays we see car often go on auctions and charity sales for mere prices like $40 to $60.
So a here question arises whether a car donation still worthy? Well, it is advisable if you have a trash then stay away from the whole donation concept as it will not gonna beneficial for either of the party. On the contrary to that, if you have a car or vehicle that is functioning, can bring major impact to both the parties.
So here we are putting worthy reasons why you should donate a car if it is still functioning and in working condition.
1. Donate A Vehicle/Car To The Charity House For Use
As we’ve mentioned above, your first thought behind a donation should be a society welfare. If you have a car or any other class of vehicle that is functioning properly, then many charities and foundation can make optimum use of these transport resources such as taking people to the hospital, dropping orphan kids to school and many other things.
2. Support A Charity Who Is Supporting Work of Your Choice
As we all know that the majority of the people donate their fund or asset to only those charity whose work they believe in. Having said that, there is nothing wrong in supporting the charity of your interest. For instance, you are a proponent of vocational education programs. Hence, you can donate your car to any vocational education trust so that they can use your car to train the students about mechanics, engineering, etc.
3. Donate Car For Tax Credit
This has to be the focal point of this article, and here we are going to guide you to donate car for tax credit purposes. See, rules are strict since the implementation of ‘American Job Creation Act, 2004’ and the whole mechanism more complex, but still, there is a scope for deduction oncoming fair market value. Suppose if you donate a car worth more than $500, and charity sells or auctions it, you must obtain an inscribed notice from the charity house stating that it was ‘sold in an arm’s length transaction between unrelated parties’ and the collective proceeds of the sale. Additionally, if the car is going to be used by the charity in its schemes and campaigns, then you will receive written certification of its intended and time horizon of use. Following this, the charity must not sell or exchange the vehicular asset before the planned period of intended use. In case, the car is valued over $5,000; you must also get an independent appraisal solidifying so.
If your car donation deduction is more than $500, then you are bound to complete the IRS Form 8283. In case, your deduction is between $501 and $500; you must complete Section A. If your deduction is greater than $5,000, you must complete Section B along with that you must also get a written appraisal as documentation.
Here are some quick tips for you, in case you need them:
- You can determine the car’s fair market value by looking into a recent copy of the Kelley Blue Book.
- A Majority of the charities will report the sales price of your car to you on Form 1098-C.
- Always donate the car to a charity that is a qualified organization, you can check the list of qualified ones at this IRS site.
- Always document those transactions and keep them in your IRS tax file for that year, in case any legal obligation arises or your tax prepared needs it.
4. Defer The Problem of Selling the Vehicle yourself
We would consider this particular point as the most significant one regarding psychological aspect. As we’ve seen many people coping with the problematic situation of selling the vehicle themselves. That generates unnecessary expenses for newspaper ads, time consumption as you have to show the car to potential buyers (maybe not) and hassles over the sales price.
5. Isolation From A Car With no Proper Title
There are various charity houses and trusts, who will take a car for which you can’t find the title. Although these cars with no title leave charities with no option but to sell them for scrap or parts, eventually reducing the value of your tax credit or deduction. But at least this particular medium provides you with an option to get rid of the car that doesn’t have a title. Hence, you avoid the hassle of finding the resale value and the buyer of the car.