I have a car that I'm considering donating for the tax write off, but have been reading some confusing data about the actual tax benifit - due to some tax law that the IRS implimented. I have an E-mail in to my borhter-in-law who does my taxes to hopefully get his professional insight, but I thought I would throw it out there as well. Here is the link to the data that I have been trying to figure out: Thanks,
I don't know what the current laws are, but we donated a car about 3yrs ago. You have to claim a reasonable value for it, usually per KBB values. We went for the Good condition value, since we couldn't honestly claim it was Excellent. I also looked into donating another car, but wound up selling it for a little more than we would have got back for donating it. Yep, it was sold for dirt cheap, i.e. $500, but it was still more than the $300 we would've got back otherwise. If you can figure out what it would actually be worth to you in terms of a tax break, it might help you set a realistic price for it when trying to sell it. Remember, you can wait until much later in the year to donate it, so it might be worth taking a few months to try and sell it first. Stuart.
Right on, thank for the advise! I talked to a woman at the orginization and my understanding of the process is that you donate the car, and they give you a tax deductable memo for $500.00. They then take the car to auction through a private party who sells the car for as much as they can get. Let's say that they sell the car for $900.00, the 3rd party takes out $X.XX for their service fees, and you get a revised memo for the "sold for" price of the car. If it doesn't sell for more than $500, then you still get the full $500. So, I guess I have to figure out if I'll get the full $500 back at the end of the year, or if it will be a percentage of that. I'm pretty sure no one would pay more than that for the car - it's got some "issues."
The lady you spoke with was pretty much right on about the $500 deductible limit up front and then the revised memo if they sell it for more later on. Just to add another option, if you really want to help charity, you might get a better deduction on your personal tax return if you can sell it for more than the donated car place, and then turn around and donate the actual cash to a charity of your choice. BTW tax law states that if you claim a deduction for non cash donations totaling more than $500 (donating a car, donating home goods to goodwill, etc.) you must then have a full appraisal done on your donated items before you can claim that deduction. There's a special form the IRS needs and everything.
No, you won't get back the full $500. As with any other charitable donation, the amount of the donation reduces your taxable income, thereby reducing your total tax liability. The government doesn't give you back the whole amount of the donation, otherwise we'd all just donate our entire pay cheque every month, and get it all back at the end of the year. Stuart.
Most of the times, the amount of your deduction is limited to 50% of your cash donated. Once you start making more money and your adjusted gross income gets over a certain point, you start losing the benefits of charitible donations. As with every tax law, there are also exceptions to the 50% deductibility rule, - with certain types of donations you only receive 30%, and others 20%.
My parents have donated a few cars in the past. IIRC one of them even broke in half when they towed it away. back then it used to be a sweet deal. however i have heard that there was a change in how it is writen off on taxes and is no longer anywhere near as good. I am not exactly sure why but thats what i heard last summer.
It's because people were donating their pos cars, looking up the values in Kelly Blue Book, and abra cadabra - your car that's falling apart/doesn't run/etc. is instantly worth an inflated value for you to claim as a deduction.
