Tax deductions for car donation

There are many non-profit charities that accept car donations. Some of the vehicles are taken apart for parts, while others are used as part of a ?wheels to work? program that provides transportation to help people get to work. Other nonprofit organizations will sell your donated car and use the proceeds from your vehicle sale to fund important employment and job training programs for people with disabilities and other disadvantaged conditions that prevent them from being successful in the workplace.

In the past, you could donate a vehicle and receive a tax credit for the fair market value of the vehicle you donated. A new law that went into effect on January 1, 2005 changed the tax deduction process to make it more difficult to claim the full value of your donated vehicle. Today, the new law says you can only deduct the profit the charity makes from the sale of the car minus the cost of any necessary repairs. The charity must provide the donor with a written acknowledgment of receipt of the vehicle, as well as the selling price of the vehicle. This could be problematic because the selling price of the car will be significantly less than the actual market value of the vehicle. Charities disapprove of this new law because it will discourage many potential donors, which will hurt the charity. However, you shouldn’t put potential donors off if the charity is their favorite nonprofit and they know they’re really helping people get back on their feet. A tax deduction is nothing compared to helping someone in need.

The only way to deduct the full fair market value of your vehicle is if the charity does not sell your donated vehicle. If the charity uses your vehicle for a program like ?wheels to work? and acknowledge your donation in writing, you can claim the full fair market value.

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