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If you are looking to get a break on your taxes for tax year 2016, taking another look at the car you donated to charity may help you to maximize the gains that you make on your charitable contribution deduction.
While donating a car for a tax credit is not possible you can certainly pull a major deduction on your taxes for any car donation that you made during 2016.
Calculating Your Deduction Value
As per current rules, the IRS requires that you calculate the value of your deduction in one of two ways:
Method 1: Finding the Sale Value-->Since many charities will immediately flip the cars that are donated to them to build cash, it becomes your responsibility to discover what your car was sold for when reporting on your taxes. Charities will normally sell the car at auction, so all that you will need to do is find the auction records. You can only deduct the value of the car based on its selling price.
Method 2: Finding the Fair Market Value-->Alternatively, if the charity sells the car to an individual at a deep discount to help them get back on their feet or keeps it for themselves, you are entitled to deduct the fair value of the car on your taxes. You can do this by going to Kelley Blue Book and entering your car's information to get a fair market value.
Obtaining the Deduction
When you file your taxes, you will need to report the deduction value on line 17 of the Schedule A form. You will probably want to itemize your deductions, because you can only claim a car deduction if you do so. Even though you are no longer able to take the standard deduction if you itemize, the value of a car deduction will usually supersede the value of the standard deduction.
If you realize that your car donation deduction is going to be worth more than $500, then you will need to fill out Form 8283. If the value of your deduction is worth between $501-$5,000, you are required to complete section A of Form 8283. Alternatively, if your car deduction is worth more than $5,000, then you will need to complete section B and obtain a written appraisal slip as proof of your deduction value.
Some Other Things to Keep in Mind
There are a couple of other things that you should know as well regarding car donations:
1) If the charity sells your car at auction for $500 or less, you can deduct the car's fair market value or an even $500, whichever happens to be lower. For example, if your car has a fair market value of $700 but sells for $250, you can only deduct $500. This is better than $250, of course, but it is less than the fair market value.
2) You absolutely need to keep documentation of any car donation that you make. At the very least, you need to receive some form of documentation from the charity that you donated the car to that lists your legal name, the VIN (Vehicle Identification Number) of the car, the date that you donated the car, and any type of good or service that you were given in exchange for the car.
3) Again, donating your car will not grant you a tax credit. A tax credit is a dollar-for-dollar write-off on your taxes. However, donating a car to charity can still provide a deduction which could reduce your tax burden considerably.
Of course, it may be smarter to sell a car than to donate it under certain circumstances, as the value that you receive from selling the car could be higher than the tax deduction that you can take from donating the car. That sales money could be used to help pay your taxes instead.
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By: Patrick Mansfield | U.S.Gov Connect