One of the most important steps in making a charitable donation, especially when the donation is a high dollar item like a car, truck, or van, is determining the deductable value of your donation. This isn’t as easy as simply writing down what you paid for it and calling it a day. Here are the steps that you should follow to determine the value of your car for donation.
Fair Market Value
Fair market value is not the same as the Kelly Bluebook value of your car. Fair market value is defined as “the price a willing buyer would pay and a willing seller would accept, when neither party is compelled to sell or buy. “ This value must take into account things like mileage and age, which are included in used car guides, as well as repairs that may need to be completed and any damage to the body, engine, or interior.
For example, the Kelly Bluebook value for a 1996 Lincoln Towncar Executive Sedan with 100,000 miles on it in good condition would be about $2,000. This sound like a pretty good deductable until you take into account any repairs that need to be done to the car to make it fully functional again. This includes engine repairs, body damage and interior parts like the power window motors or bulbs that may need to be replaced.
After taking this into consideration, your donation may be worth $1,000 or less.
Take care when claiming the full Kelly Bluebook value of your car as a deduction, because the IRS will only accept the fair market value. If you have any questions about this, consult IRS Publication 561, titled Determining the Value of Donated Property.
As with all tax-related information, it is vitally important to keep detailed records of all donations and transactions. First, you must obtain written acknowledgement from charity the charity, for any donations worth more than $250. This acknowledgement must contain the following information:
- Name of the charity
- Description of the car
- A statement that you didn’t receive any goods/services for the donation OR
- A description/estimate of the value of goods/services provided for the donation OR
- A statement that the services provided consist only of religious benefits
When you file your taxes, in addition to your normal Form 1040, you will need to file a Form 8283, Noncash Charitable Contributions, Section A, if the value of the contribution is more than $500.
If the value of the donation is greater than $5,000, you will need to obtain a written appraisal which must be obtained before the car is donated. If a written appraisal is required, you will need to fill out Section B of Form 8283 as well.
Charitable donations are always appreciated, but it isn’t as simple as dropping off your keys or handing over a box of old dishes to the local Goodwill. There are a few other requirements that will be discussed in a moment.
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