What Happens to Donated Cars and Your Tax Deduction?

A car donation supports a charity and may offer a tax deduction. Understanding the process and required documentation ensures a smooth experience and proper tax benefits.

Initiating Your Car Donation

Begin by researching and selecting a qualified charitable organization. Verify the charity is an IRS-recognized 501(c)(3) tax-exempt entity, as donations to non-qualifying organizations are not tax-deductible. The IRS Tax Exempt Organization Search tool or the charity’s EIN (often on their website) can confirm its status. You can also request their IRS determination letter.

After selecting a charity, understand its vehicle eligibility requirements. Most accept vehicles in various conditions, from running cars to those only suitable for parts. After confirming eligibility, contact the charity or its donation program to arrange the donation. Many offer vehicle pickup, while others require drop-off.

Properly transferring the vehicle’s title is crucial. The title is the legal document proving ownership, and its transfer ensures you are no longer liable. Sign the title over to the charity, including their legal name, address, odometer reading, and date of sale. Notarization may be required by state regulations. Remove your license plates before transfer and follow state guidelines for their return or transfer.

The Charity’s Actions with Your Donated Vehicle

After a charity receives your vehicle, its actions determine your potential tax deduction. Most commonly, the charity sells the car, often at auction, to fund its programs. The gross proceeds from this sale typically establish your deductible amount.

Some charities use the vehicle directly in their operations, such as transporting goods, supplies, clients, or for community outreach. If the charity uses the vehicle significantly in its programs or materially improves it before selling, you may deduct its fair market value. Significant use means the charity uses the car to substantially further its regular activities; the use must be considerable, not incidental.

Some charities also give the vehicle directly to an individual in need as part of their mission. The charity’s decision on how to use or dispose of the vehicle depends on its condition, the organization’s needs, and how to maximize financial benefit. For example, a car in poor condition might be stripped for parts, while a well-maintained vehicle could be sold for a higher return or used directly.

Claiming Your Tax Deduction

Claiming a tax deduction for a donated car requires understanding IRS rules and is available only to taxpayers who itemize. The deductible amount depends on what the charity does with the vehicle. If the charity sells the car without significant use or material improvement, your deduction is generally limited to the gross proceeds from that sale.

However, if the charity uses the vehicle substantially in its programs or materially improves it before selling, you may deduct its fair market value at the time of donation. If the vehicle sells for $500 or less, you can typically deduct $500 or its fair market value, whichever is less. For deductions exceeding $500, the charity reports the sale price to you, which usually becomes your deductible amount.

For donations where the claimed deduction is more than $500, you generally need to complete IRS Form 8283, Noncash Charitable Contributions. This form has different sections: Section A for noncash contributions between $501 and $5,000, and Section B for contributions valued at $5,000 or more, which often requires a qualified appraisal.

Essential Documentation for Donors

Proper documentation is essential for substantiating your car donation tax deduction. The charitable organization must provide a contemporaneous written acknowledgment of your donation. This acknowledgment, often IRS Form 1098-C, is crucial for your tax records.

This form or statement must include the charity’s name and EIN, contribution date, vehicle description, and whether any goods or services were provided in exchange for the donation. If the vehicle sells for more than $500, the acknowledgment will also state the gross proceeds from the sale and confirm it occurred in an arm’s-length transaction. You typically receive this documentation within 30 days of the vehicle’s sale or donation date.

For deductions over $500, attach a copy of Form 1098-C to your tax return. If your total noncash contributions for the year exceed $500, you also need to file IRS Form 8283, with your donated vehicle’s details. Retain all related records, including title transfer documents, correspondence with the charity, and any valuation records, for tax compliance.