There are three significant exceptions to the general rule limiting your deduction, which is tied non-profit organization’s selling price of the vehicle. If one of these exceptions applies, you may deduct the vehicle’s fair market value as shown in a used vehicle pricing guide, such as the Kelly Blue Book. (However, the value cannot exceed the private party sales price listed in the guide). Except where the car is an old clunker worth $500 or less, this will usually give you a larger deduction than using the actual selling price for the vehicle.
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Exception 1 – deductions of $500 or less
If you claim a deduction of $500 or less for a donated car, the car’s valuation does not have to match the sales price the charity got for it. Instead, you may deduct the smaller of $500, or the vehicle’s fair market value on the date of the donation. If you do this, be sure to get an acknowledgment of your donation from the charity. The letter of acknowledgment must include:
- The charity’s name
- A description (but not value) of the car, and
- A statement whether you got goods or services in return for your donation.
Read Also : Who Benefits From a Car Donation?
Exception 2 – vehicle used by a charity
You may also deduct your car’s fair market value at the time of the donation if the charity keeps the vehicle and regularly uses it as part of its normal activities. If you’re relying on this exception, the charity must give you a written acknowledgment within 30 days of receiving the automobile that includes a statement that it intends to use the vehicle rather than sell it.
Other Article : What are the Benefits of Donating a Car?
Exception 3 – the vehicle was given or sold to a needy person
You can also deduct a car’s fair market value at the time of the donation if the charity intends to give it to a needy person, or sells it directly to a needy person for a price well below fair market value. The vehicle can’t be sold at an auction. For this exception to apply one of the charity’s purposes must be to help the poor or underprivileged who need transportation. If you’re relying on this exception, the charity must give you a written acknowledgment within 30 days of receiving the car donation. The acknowledgment should include a statement that the charity intends to give or sell the car to a needy person.