How to donate your car for tax credit

It’s simple to donate a car to charity if all you want to do is getting rid of it. Simply call a charity that accepts old vehicles and it will drag your heap away.

If you want to maximize the profit for both the charity and yourself, however, it’s more difficult. Until 2005, it was easy for taxpayers to deduct the entire “fair market value” of a donated vehicle from their chargeable income, reducing the taxes they’d have to pay to the Internal Revenue Service.
Allowing taxpayers to take away the full fair market value for all those donated vehicles cost the IRS a lot of dollars, however, so the agency tightened the rules. Today, you can only take away a vehicle’s fair market value under very specific conditions. We’re going to walk you through those conditions, with the common terms that you should discuss these issues with your tax preparer before you act. Also note that if your state or region also levies income taxes, other rules may also apply.
You must detail Your Return
If you want to claim fair market value for your car donation to cut your federal income taxes, you must detail deductions, an registered agent based. A registered agent is a tax expert who can represent clients before the IRS.
If you’ve constantly filed 1040EZ tax returns and you plan to keep filing them, you won’t be able to remove any amount for the car donation. You can file a regular 1040 tax form and detail, even if the donated auto is your only deduction. That’s generally not the best choice, however, unless you like paying a lot extra taxes to the IRS than you must.
“For tax reason, because a donation is a deduction from your income, the tax benefit relates to your tax bracket,” “It’s not a dollar-for-dollar item.”
Assume you are in the 28 percent tax bracket. Your donated car’s value, and thus the deduction, is $1,000. “The $1,000 deduction will save you $280,” If you’re in the 15 percent tax bracket and you donate a car worth $1,000, it will only reduce your taxes by $150.
If instead you get the standard deduction, which in 2012 was $5,950 for a single individual or $11,900 for a married couple filing together, you keep thousands of dollars over filing a detail return only for the purposes of detailing your car donation.
The Charity has to qualify
your city councilman’s campaign organization and your hobby club may be nonprofit organizations, but donating a car to them won’t give you any tax benefits. Only “qualified” charities can provide those for you. A qualified charity is one that has been approved by the IRS as an “exempt-status” or 501(c)(3) organization, Most organizations will state in their advertising or receipts that they’re a 501(c)(3) if indeed they are one, she says. “If you’re not sure, ask.”
Religious organizations are a unique case. They do count as qualified organizations, but they aren’t mandatory to file for 501(c)(3) status.
To help you verify whether a charity is qualified, the easiest thing to do is visit the IRS’s exempt organizations site.
You can forever donate as much as you want to charities, but the IRS limits how much you can claim on your tax return. “Charitable donations can’t exceed 50 percent of your gross income,”
How To Deduct Fair Market Value
These are the four IRS rules under which you can get the maximum deduction of a donated car:
1. When a charity auctions your car for $500 or less, you can claim either the fair market value or $500, whichever is less?
2. When the charity intend to create a “significant intervening use of the vehicle.” This means the charity will use the car in its work, such as delivering meals to needy people.
3. When the charity intends to create a “material improvement” to the vehicle, which is “anything that increases the car’s value and prolongs its life,” “It can’t be a minor repair or maintenance; it must be something like fixing the engine or systems that run the car,”
4. When the charity gives or sells the vehicle to a needy individual at a price significantly below fair market value, and the gift or sale is part of the charity’s mission of helping the needy who need transportation.
How To Determine Fair Market Value
To recapitulate, the IRS defines fair market value as the price a willing buyer would pay and a willing seller would accept for the vehicle, when both party is compelled to buy or sell and both parties have reasonable knowledge of the relevant facts. Neither the buyer nor the seller can be an auto dealer. Both must be private parties.
Here’s an example: Let’s say your car is a 2003 Honda Accord DX sedan (the lowest trim level). It has 200,000 miles and it’s in “average” condition. Edmunds estimates it would be worth $1,862 in a private-party sale in California. You can’t instead claim the $5,318 private-party value of a Honda Accord EX sedan (a much higher trim level) with 100,000 miles in “clean condition” (a condition grade that’s one step up from “average”).
Receiving Fair Market Value Is Rare
It’s not sensible to expect that your car will meet one of the most stringent fair market value requirements. Take it from 1-800-Charity Cars, which says it is the biggest car donation charity in the United States. It picks up donated vehicles from across the country and gives as many of the cars as possible to people who require transportation. According to the charity, few donated cars are right to give to the people it serves.
Paperwork Is Most Important
According to IRS Publication 526; the first option is to file Form 4868 to apply for an automatic six-month extension of time to submit your return. Your second option is to file the return on time without claiming the deduction for the eligible vehicle. When the charity finally sends your notification, you can file an amended return using form 1040X to claim the deduction. You’ll have to attach a copy of the notification to your 1040X.
Getting tax benefits for a donated car needs a lot of documentation, whether the car is junked, sold at auction or given to a charity’s client. IRS Publication 4303 has all the details. One tip: Keep all the papers or electronic files. You’ll need them at tax time.

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