If the car being donated is valued at more than $5000 then an appraisal needs to be done by a qualified appraiser no more than 60 days before your tax deadline (including any extensions). Whether the car is worth more than $5000 or less, the charity will provide you with the amount that the car sold for and that can be itemized on your Schedule A of your From 1040. It is important to remember that deductions cannot be more than 50% of your adjusted gross income. In the case of the Corvette Z1 that was recently sold at RM Auctions in Pebble Beach to benefit GRACE Charity, the sellers/donors would, in theory, be able to deduct the appraised fair market value (FMV), in this case the MSRP, of $118,000 while the buyer was able to deduct the amount that they bid over FMV (the high bid was $151,252.oo) minus the buyer’s premium which was paid to RM Auctions except in this case the sellers had stipulated that only the amount over the MSRP would be donated to GRACE and therefore the only portion which was deductible.

If the amount if the car exceeds $500 then Section A of Form 8283 must also be completed and you must have a written acknowledgment from the charitable association on or before your taxes are due. Publication 526 on the IRS website has the qualifications for charitable organizations. Once the charity sells the car they have 2 years to notify the IRS of the sale and provide you with a copy of the form it sends to the IRS notifying them of the sale and the amount that it sold for.

Because they have 2 years however, it is often easier for you to sell your car yourself and donate cash to the charity directly. Your charity will often benefit more by making a donation this way because in most cases charities use third party services to sell the car on their behalf at wholesale auctions where the deductible amount can end up being less than FMV. Selling a car private party will bring more money and establishes a documented FMV while your charity gets more money and you get to deduct more.

For more information, always talk to your accountant before you decide to take the charitable plunge and make sure that you do all of the steps correctly. It will be worthwhile for everyone!