How to Save Tax by Donating Your Car

If you have a car that you’re no longer using and don’t want all the hassles of selling it away, then donating it to a charity makes sense.

Donating your car has the same kind of tax benefits just like any other charitable contributions. You can save on taxes. By donating your car, you’ll not only help make this world a better place but you’ll also get tax benefit or deduction.

According to the IRS, you need to calculate your tax deduction quite quickly after making the donation. And that depends on how the charity plans to use your car.

Let’s see the required procedure you need to follow to get your tax benefits.

Here we go:

Phase 1: Donate to a Valid Non-profit Charity

Whenever you’re looking to donate your car to charity, make sure that it is a valid non-profit organization registered with the IRS.

Go to the website search tool of IRS to check if your desired charity has tax-exempt status or it is a 501©3 organization. You’re eligible to get a tax deduction only if you donate to a non-profit organization with the tax-exempt status.

Otherwise, you won’t get any tax benefit even after donating your car. That’s why make sure your preferred charity has tax-exempt status before donating your car.

Saving tax by donating car

Phase 2: Calculate Your Tax Benefit

If the charity sells the car in an auction:

  • If the selling price is more than $500, you can get the total selling price as your tax benefit.

For example, if your non-profit organization sells the car for $2500, then you’re eligible to claim a tax cut of up to $2500.

  • However, If your non-profit organization sells your donated car for less than $500, then you can always claim the FMV or fair market value of your donated car as your tax benefit.

If the charity uses the car or salvages it:

Again, if the charity keeps your donated car for their own use or salvages it for money, then you can always claim your car’s FMV as the total tax benefit of your charity.

You can determine your car’s FMV by going to the local library and getting a copy of Kelley Blue Book. You can also search on the internet to get your car’s FMV.

Phase 3: Claim the Tax Deduction

If your tax benefit from the car donation is less than $500, then all you have to do is write up the amount of tax benefit on the IRS Form 1040.

However, if the value of your tax deduction is more than $500, then you also need to fill up the IRS Form 1098-c and the IRS Form 8283.

If the value of your tax benefit is between $500 and $5,000, then you need to fill up the Section A of the IRS Form 8283. On the other hand, if your total tax deduction is more than $5,000, then you have to fill up the Section B of the IRS Form 8283 and get a written appraisal.

Phase 4: Keep All the Records

To get the tax deduction without any hassle, always keep the following records at your disposal:

  • Name and address of the charity where you have donated your car.
  • Date of Donation.
  • Place of your car donation.
  • A legal receipt from the charity if your car is sold for more than $500.
  • A full description of your donated car.

You must obtain a document from your charity for your donation and it must have your name, car ID number, date of donation, and a written statement at the minimum.

This way you can claim the deduction and save tax by donating your car without any hassle.


Scroll to Top