How Do You Deduct a Donation of a Free Car?


Quick Answer

To claim a tax deduction for the donation of a car, calculate the correct deduction amount and include it on your tax return, according to Kay Bell for Bankrate. The amount of your deduction depends on the vehicle's fair market value and the charity's use of the car.

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How Do You Deduct a Donation of a Free Car?
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Full Answer

Prior to donating the car, determine its fair market value, explains TurboTax. Use an up-to-date copy of the Kelley Blue Book or research current sale prices for vehicles of the same make and model with a similar overall condition.

After the donation is made, contact the charity to find out how the vehicle is ultimately going to be utilized. The organization may have chosen to sell the car for profit or utilize it internally. This information affects the amount you are allowed to deduct on your taxes, states Bell.

In situations where the charity keeps the car for internal use, you can use the vehicle's fair market value for your tax deduction amount, notes TurboTax. This also applies if the charity gives the car away or sells it at a deep discount to an individual in need.

In situations where the charity sells your donated car, you must find out much money was made from the sale, reports Bell. For sales grossing less than the fair market value, your deduction amount is limited to the sale price with a minimum deduction threshold of $500.

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