Your rusting junk car could be worth a lot of money to the charity of your choice and give you with a nice tax write-off at the same time if you keep it in your backyard or driveway.

The sky-high prices for new and used cars have led to an increase in demand for junk cars, which may either be auctioned off for their parts or restored and utilized again. Charities who actively seek donations of unwanted vehicles, regardless of the state of the vehicles, stand to benefit from the sale of the vehicles.

Donors may be eligible to receive a tax deduction equal to the value of the donated vehicle.

There are a lot of organizations out there that make it simple for you to give your vehicle, and some of them will even come get it if it isn’t running anymore. However, in order to comply with the regulations set forth by the Internal Revenue Service (IRS), you are required to make a donation.

Donating Your Car to Charity and Receiving a Tax Break

In order to qualify for the deduction that is made available when you donate an old vehicle to charity, you are required to do the following:

List All of Your Deductions

In order to receive a tax advantage for your contribution, you will need to itemize your deductions. Donating your vehicle, on the other hand, won’t help you reduce your tax liability if you take the standard deduction, which is taken by about 90 percent of taxpayers.

Accumulate the Necessary Documentation

The amount of the write-off that you are eligible for as well as the documents that you require will be determined by the worth of the car as well as the plans that the charity has for using it. The organization has the option of either using the car in its day-to-day activities or selling it and keeping the money from the sale.

If you want to claim that the car is worth more than $500, you are required to receive a formal recognition of the donation from the charity, and this is true regardless of how the charity plans to utilize the vehicle. This acknowledgment needs to include the following:

• Your name, as well as your Social Security number or other identifying number for tax purposes.
• The vehicle identification number (VIN) of the automobile.
• The time that the contribution was made.
• A statement from the charity either confirming that no goods or services were supplied in exchange for the donation, or providing an estimate of the worth of any goods or services that were provided.

If the charity decides to sell your vehicle, then the amount of your tax deduction is restricted to the amount of money that is made from the sale. This amount may be lower than what you consider the automobile to be worth.

Consider the following scenario: you give a car to a charity that is estimated to be worth $3,000, but the charity only manages to sell the car for $2,000 after your donation. In that scenario, the most you can deduct is $2,000 from your income.

It is the responsibility of the charity to provide you Form 1098-C, “Contributions of Motor Vehicles, Boats, and Airplanes,” within one month of the sale of the automobile. It is expected that the form will include:

A statement attesting that the charity was able to sell the vehicle in what is known as a “arm’s length transaction between unrelated parties.” To put it another way, the charitable organization did not give a lower price to an employee or any person connected to it.

• The date on which the automobile was purchased.
• The total amount of money that was made from the sale.

On the other hand, if the charity plans to use the car in its operations, you are able to deduct the car’s fair market value on the date that you donated it to them. In that situation, the written confirmation from the charitable organization should confirm that the group plans to employ the vehicle and indicate how it is going to be put to use.

When you submit your tax return, you are required to include both Form 8283, “Noncash Charitable Contributions,” as well as Form 1098-C [Form 1098-C (Rev. November 2019) – Internal Revenue Service ], or any other documented acknowledgment, of any noncash charitable contributions you made. If you use any of the best online tax software available in the modern day, the program you use should be able to fill out the necessary forms for you automatically after you respond to inquiries regarding your donation.

Let us know if you need any help.

Contact Surya Padhi at Sure Financials for any questions and clarification. Surya Padhi is an expert who keeps current on tax law changes as well as a member of the National Association of Tax Professionals National Association of Tax Professionals (NATP) and  National Association of Enrolled Agents (naea.org). Visit Welcome | Sure Financials & Tax Services, LLC (surefintaxsvs.com) for more information and contact us by calling +1 908.300.9193. 

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