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Is A Vehicle Donation Tax Deductible?

Is A Vehicle Donation Tax Deductible?

Vehicle donation is a common activity done by many individuals to both realize a tax benefit and also support their favorite charity. Many households own more than a few vehicles and normally there is one that doesn't get used very often or may not be particularly new anymore. This is the type of vehicle that often gets donated to help others in need while also benefiting from an act of generosity.

Short Answer

Yes, a vehicle donation is tax-deductible (PDF) as long as the vehicle in question is donated to a qualified and legally recognized charity. When a vehicle is donated to a charity and a receipt has been received you can claim the deduction on your personal income tax. There are a couple of things to keep in mind such as fair market value and how the donation is handled. Speak with your accountant or tax advisor to make sure the deduction is applied properly.

Fair Market Value

The fair market value of a used vehicle is what it is worth on the open market if sold by an individual or other party. This was the guideline used prior to the 2005 rule change which yielded a significant tax benefit and encouraged individuals to donate older or rarely used vehicles. However, this interpretation no longer applies and it is important to understand the new rule as it applies to personal income taxes.

2005 Rule Change

Under the new rule, a vehicle donation is still tax-deductible but the amount you can claim is less than what used to be previously. Instead of claiming the fair market value of what the vehicle could go for now you can only claim the actual selling price. For vehicles donated worth more than $500, the amount claimed as a personal deduction is the same amount the charity or nonprofit organization receives at the time of sale. As anyone who has sold something on Craigslist or eBay knows, what something sells for can often be significantly less than what it's worth.

One Exception

If you want to realize the fair market value of a vehicle donation there is one exception which allows this happen. If the charity gives the vehicle as a gift to a needy family or individual then you can claim the fair market value as a deduction. Since the donation was not sold there is obviously no sale price to use for tax purposes. If this is important to you, make sure the charity does not sell your donated vehicle but instead gives it to someone in need. Be sure to obtain paperwork stating that the charity will not be selling the vehicle and outlining its intended use.

Keep In Mind

As with most tax deductions there are a couple of extra stipulations which must be followed to properly claim a vehicle donation. There is an income limit which prohibits a deduction for more than half your adjusted gross income. This type of deduction must also be filed on a Form 1040 Schedule A as an itemized deduction. As long as these qualifications are met you should have no issues if you want to benefit from a vehicle donation that is tax deductible.

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