Are you planning to donate your car to charity? It may not be as easy or simple as before. In the past, when you give your car to a non-profit organization, you deduct the fair market value of the vehicle. This value is the price that a willing buyer will pay. However, it does not work like that today. Since some people cheat on the amount of their vehicle value, there are new laws to help eliminate cheating. As a result the donation process is a little more involved now.
Income tax rule changes
You can no longer claim this type of donation on a normal tax form. Do you use 1040EZ or 1040A? You may be better off selling the car and donating the money. In other words, you now have to itemize deductions. A married couple filing jointly needs over $11,000 in deductions. Maybe your vehicle is worth a lot of money. You may be close to the allowed deduction amount. In this case, the donation may be a good tax strategy.
Remember that your donation value will not be equal to your tax liability. If you donate a five hundred dollar vehicle, you may only see a $125 reduction in your taxes. This depends on your total income and tax bracket.
Limiting amounts
If you donate a vehicle you do not know how much you can claim. It is based on what the organization sells it for. It is no longer based on the market value. You may donate a $700 vehicle. However, if they sell for $600 then that is all you can claim. You also have to wait until the vehicle is sold to find out the amount.
There is some protection, however. Suppose your vehicle sells for only $200 or $300. This will usually be below the actual value. In this case, you may still be able to claim a $500 deduction.
More things to consider
Make sure that you are giving the vehicle to a qualified organization. There are many professional fund raisers that will take your items. In some cases, only a small percentage of the money goes to the actual cause. Much of it may go into someone's bank account. There are some fundraisers that keep 99% of the money that they take in. Whenever possible, give directly to the cause of your choice. Avoid these fund raisers, if possible.
Summary
There are good reasons to donate a car to charity. Make sure that you understand the new tax changes. You may not get as big a tax break as you think. Also be certain that you give directly to your cause of choice. Remember the fundraisers may keep 99% of your donation.
Income tax rule changes
You can no longer claim this type of donation on a normal tax form. Do you use 1040EZ or 1040A? You may be better off selling the car and donating the money. In other words, you now have to itemize deductions. A married couple filing jointly needs over $11,000 in deductions. Maybe your vehicle is worth a lot of money. You may be close to the allowed deduction amount. In this case, the donation may be a good tax strategy.
Remember that your donation value will not be equal to your tax liability. If you donate a five hundred dollar vehicle, you may only see a $125 reduction in your taxes. This depends on your total income and tax bracket.
Limiting amounts
If you donate a vehicle you do not know how much you can claim. It is based on what the organization sells it for. It is no longer based on the market value. You may donate a $700 vehicle. However, if they sell for $600 then that is all you can claim. You also have to wait until the vehicle is sold to find out the amount.
There is some protection, however. Suppose your vehicle sells for only $200 or $300. This will usually be below the actual value. In this case, you may still be able to claim a $500 deduction.
More things to consider
Make sure that you are giving the vehicle to a qualified organization. There are many professional fund raisers that will take your items. In some cases, only a small percentage of the money goes to the actual cause. Much of it may go into someone's bank account. There are some fundraisers that keep 99% of the money that they take in. Whenever possible, give directly to the cause of your choice. Avoid these fund raisers, if possible.
Summary
There are good reasons to donate a car to charity. Make sure that you understand the new tax changes. You may not get as big a tax break as you think. Also be certain that you give directly to your cause of choice. Remember the fundraisers may keep 99% of your donation.
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