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What’s Your Car Tax Deduction?
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What’s Your Car Tax Deduction?

March 15th, 2013 09:32:49 pm, posted by Amy Lee
What’s Your Car Tax Deduction?

Are you considering donating your old vehicle? Most people have heard about car donating, and know that there’s a significant tax deduction involved. What they might not know is that this tax deduction can vary, and that there are several things that will make the amount of your deduction rise and fall. First, find out what the IRS says about car tax deductions in general, and then find out how this applies to you and how you can get the best car tax deduction possible.

A Charitable Vehicle

There are two loose groups that your car donation will fall under. Either you’re donating to a charity that is going to use your vehicle for something - such as transporting the elderly, or bringing food to the disabled, any kind of charitable service - then you will usually receive a donation receipt equal to the fair market value of your car. This would be a pretty good deal, but, unfortunately, there are a significant number of people who are willing to donate vehicle, and a limited amount of vehicles that a charity can receive. If, for example, your car is old or beaten up, then a charity isn’t going to be able to take the time to fix it up and use it. Even if your car is in pretty good condition, most local charities just don’t need vehicles. So, the majority of car donations fall under the second category: where the car is received and then sold by the charity for a profit. If this is the case, your donation isn’t going to exceed the gross proceeds made from the sale. Depending on the wisdom and
experience of the charity you’re donating to, this can be a good or bad thing. You want the charity that receives your car to already know quite a bit about selling and fixing up cars so that you can receive your maximum deduction. However, there are a few tricky exceptions and rules that go along with these tax deductions - like it is with all tax deductions - so you need to keep track of your paper trail and know about the other rules that might apply to you.

The $500 Rule

One of the most commonly talked about exceptions is a rule that the IRS uses to help increase the tax deductions of vehicles that are sold for less than $500. If, for some reason, you gave your car to charity, and it only sold for $150, then there’s a way to up your deduction a little. The IRS allows you to receive a deduction that’s either equal to the fair market value of your vehicle, or $500, whichever amount is lesser. This little trick will make sure that you get some profit from your donation, no matter what happens.

Acknowledging Your Deduction

No matter what charity you donate to, you’ll receive an acknowledgement from the organization that describes the donation and basically proves that you gave your car to charity. This acknowledgement is very, very important. Know what your acknowledgement says and communicate with your charity about what it should say. Your acknowledgement is what tells the IRS how much your car sold for, and therefore how much of a deduction you need to receive. It will contain all the information that you need. Check and double-check your acknowledgement if you want your tax deduction to go as smoothly as possible.

Your Valued Donations

If you’re concerned about your vehicle tax deduction, then the most important thing you can do is to find out the value of your car, and have proper documentation proving the value of your car. Do you know what your car is worth? An estimate probably won’t help you. If you can have someone cheaply appraise your vehicle, then it’s not a bad idea to have that expert check your car out. This will be an endless help if you have any problems at all obtaining your tax deduction.

Calculating Your Car Tax Deduction

Your car tax donation is probably going to be a little bit less than the fair market value of your vehicle. Considering the effort and the time you save, that’s not a bad deal. Throw in the fact that you’re giving to a good cause, and you have a winner on your hands. Sometimes, it’s not all about the money - but the money sure does help. Don’t hesitate to continue to study up on the IRS and their tax laws concerning car donations. By keeping track of your paperwork, you’ll be helping both yourself and the charity you donate to. Enjoy your vehicle tax deduction - you’ve earned it!


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