Remember that you must itemize deductions if you want to claim a tax benefit. You could itemize even if the donation is your only deduction, but that may not be the best choice.
Consider the math: If you are in the 28 percent tax bracket and the allowable deduction for the vehicle, you will save $280 in taxes. If you are in the 15 percent bracket, the same allowance will net you just a $150 reduction in your taxes.
If the car donation is your only deduction, you would fare better claiming the standard deduction. The only way in which a car donation improves your deductions is if you have a number and their total, including the car, exceeds the standard deduction.
The donation must be to a charity that qualifies. It must be recognized by the IRS as a 501c3 or a religious organization. To determine if the organization you want to donate to meets these specifications, call the IRS toll-free number, 877-829-5500.
Fair market value is defined by the IRS as “the price a willing buyer would pay and a willing seller accept for the vehicle.” Under current IRS rules, there are very specific conditions under which you can claim a deduction at fair market value: If the charity auctions the vehicle for $500 or less, you claim either the fair market value or $500,whichever is less; If the charity plans to make “significant intervening use of the vehicle” you can claim fair market value; If the charity says it intends to make a “material improvement,” rather than just routine maintenance before disposing of it , you can claim fair market value; or if the charity gives or sells the vehicle to a needy person at a price significantly below fair market value, you can claim the whole amount.
Automotive website Edmunds offers an “Appraise Your Car” calculator to help you determine fair market value. IRS Publication 4303 also offers a vehicle pricing guide.
Only about 5 percent of donated vehicles meet the stringent requirements for use by a charity. About a third are junked and the rest are auctioned to benefit the charity.
You may be able to give a more substantial amount to the charity if you sell the vehicle and donate the cash. The goal is to maximize your tax deduction, so consider the possibilities and then make the move.