If you among the US tax payers that itemize their deductions on their tax returns every year, and you have an old car you'd like to get rid of, donating it to a charity for a tax deduction might be a very good idea. You will not only be helping the charity and the people or cause they support, but you'll also be getting a nice tax break when you file. If you do not itemize your deductions, then you'll still be helping people out, but you won't get any kind of tax break or financial benefit.
Keep in mind that you can not deduct any more than 50% of your adjusted gross income in any year, but you can carry extra deductions over the 50% limit into the following five years. So don't skip a car donation just because you've nearly maxed out this year's deductions.
The rules of the road for car donations and deductions are laid out in IRS Publication 4303: A Donor's Guide To Car Donations. You can download it online from the IRS website. Of course, if you have questions about a car donation, you can also call the IRS, but most people have a chat with their CPA or tax preparer so they can be 100% clear on the tax consequences of donating a car, and so they can make sure they get all the right documentation, namely getting a letter from the charity within 30 days of your donation. This receipt explains your donation and what the charity got for the sale of your car. You will also have to attach a completed IRS Form 8283 for Noncash Charitable Contributions to your return to get your deduction.
The last major thing to be careful about is if the charity meets the IRS qualifications. They should have 501(c)(3) status, or be a church or religious organization. If you have any doubts about a charity's status you can call the IRS at 877-829-5500 to confirm the charity is acceptable.
This has no tax consequences, but be sure to call your local Department of Motor Vehicles so you can transfer the title correctly. At the very least, sign the title over to the charity when you hand over the keys, because otherwise you could be liable for parking tickets and any other trouble the car gets into after you've parted ways.
Now about your deduction. In most cases, the charity will sell your car at an auction. The charity gets what your car sold for minus the auctioneer's fees. You get to deduct what the charity received for your car. This is frequently well below the Kelly Blue Book value, but not always. Most people get a $500 deduction for their donated cars. Some cars do sell for more than $500 at auction, and in certain circumstances you can deduct more than the $500, but you'll have to file extra paperwork.
The big secret to get the maximum deduction for a car donation is in what the charity does with the car. If they sell it at auction, you deduct whatever the charity got for the car. But if the charity keeps the car, or makes significant improvements to the car before selling it, then you can claim the "fair market value" of the car on your tax return. Refer to IRS documents for the specifics of "fair market value", but it is roughly the Kelly Blue Book value. It takes a bit of research to find charities that do not just turn around and sell the cars they get, but a little persistence will pay off.
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