Charitable donations can only be included as part of your deductible if you complied with all of the Internal Revenue Service’s (IRS) rules, particularly for donating old vehicles.
When choosing among different car donation companies, you should check if they are qualified under the IRS’ list of tax-exempt groups. A group with a 501(c)(3) status is considered among them, along with religious groups and other non-profits.
Gifting Your Car
There are certain ways to find out how much you can deduct a car donation from your taxable income. Find out the charity’s sale price for it, and that should be your amount of deduction. For instance, you would get $3,000 if that was the selling price. This is the straightforward approach, but another way involves calculating the fair market value (FMV) of your car to increase your deductible.
A calculation of the FMV will require you to do research based on industry figures. This will take some time and effort. If you wish to claim the FMV on your donation, simply ask if the charity kept the vehicle for their internal use. Take note that your car should be in good condition to increase your chances of claiming the FMV.
Not all donations are qualified for tax deductions, including gifts to individuals and contributions to foreign governments. The IRS also limits the deductions from charitable donations by up to 50% of a person’s annual gross income.
If your contributions exceed that number, you can include them for filing in the following tax year.
A charitable donation is a good way to reduce your tax bill, but it can be a tedious process with numerous things to itemize on your list. Hence, you should consult with an accountant to help with your financial planning especially now with the new tax reforms in place.