IRS Donation Rules

In the olden days of car donation, people could get significantly more for their cars. This is because the IRS was allowing people to deduct based on their vehicle's market value. Unfortunately, many people would cheat the system by making deductions based on their vehicle's retail price over its market value. Consequently, the IRS lost millions in potential tax revenue. Charities receiving donating cars also lost, since they weren't able to make much money during auctions. The only people that did win were middlemen who worked for the charities, as they earned a large percentage of the profits generated.

The IRS responded to these problems by toughening the laws associated with car donation. These laws were recently enacted. Basically, if an individual donates a car that is worth more than $500, deductions must be made based on how much the charity sells the car for. A sales receipt or any other type of document containing the price must be included when a person sends out their tax return. This will be supplied 30 days from the date of the sale, as required by law for the organization selling the donated car.

The downside to this process is that car owners now get significantly less for their vehicles during a deduction. This is because charities are going to sell the vehicle at a cost that is minimal. Since they got the vehicle for free initially, any amount is profit for them. So they don't necessarily have to sell it at market value.

However, there are ways a person can try to get the most out of their car donation. The main way to do this is by choosing to donate their car to organizations that would use it to further their business, rather than selling it off. For example, 1-800-Charity Cars is an organization which gives away refurbished donated cars to disadvantaged individuals. If a person donates their car to this charity, or charities like it, the IRS will allow them to deduct based on the vehicle's market value. Cost-wise, donating to 1-800-Charity Cars specifically won't require any extra fees as the organization takes care of towing itself.

It is through this deduction loophole that 1-800-Charity Cars has received hundreds of high-quality vehicles. In fact, according to the owner of the organization, there has been a 50 percent increase in the past year in donated cars, many of which do not require as much refurbishing. If the organization does receive a vehicle that is not in workable condition, they will be sold at auction. The revenue from the auction goes to refurbishing cars that are more promising.

Yet, it should be noted that even though 1-800-Charity Cars is an attractive option for many car owners, they may still be surprised at how much they can actually deduct. This is because fair market value doesn't necessarily match a vehicle's blue book value. And it will never be near retail value. The best resource one can use to discover the market value for their car is Edmonds.com.

Regardless, car donation may still be a good alternative for getting rid of a car that is no longer of value to its owner. The only other options involve either trading it in to lower the price on a new vehicle or selling it. Trading the vehicle in will only get a person a few hundred dollars, while selling it can be hard to do. If they do decide to go through the route of selling, they can try listing their vehicle on E-Bay, Craiglist or other online venues. Perhaps through this type of exposure they might increase the chances that someone will actually make a purchase.