Because regulations were changed in 2005 on how you can take deductions from auto donations to charity, making up you mind to donate an automobile is now harder than it was before.  But, by following a few simple steps for figuring out how your vehicle is likely to be used, you can get a fairly decent idea of how to go about getting the largest possible deduction when you do decide to donate.

First off, you should take into consideration the likely benefit you would receive when you donate.  Even if you got a higher than average deduction on your taxes, you may end up not actually claiming it on your taxes.  Claiming large charitable deductions on tax returns has usually been thought of as something wealthier people do because it means itemized deductions will have to be taken on the tax return.  This can possibly mean a higher tax bill for some people.

If you don’t have any other legitimate deductions, except for a donated vehicle, and you are filing as the head of household, it is possible that filing your return with standardized deductions, instead of itemized deductions will actually be more beneficial to you, unless the car you’re donating is of rather high value.  Using Itemized Deductions tends to benefit the self-employed the most because they usually roll a big percentage of their income back into their businesses.

Before you donate a car, you may also want to consider your reasons for donating.  If you are only donating to get the tax benefit than perhaps car donation isn’t for you.  The most rewarding automotive donations are those that come with the satisfaction that a good deed has been done.  Given the complex hoops you will have to jump through when you donate, it’s a good idea to have a lot of reasons to donate a vehicle to charity.

You should keep in mind the condition of the vehicle you are donating.  Does it run?  Will it require thousands of dollars in parts to get it running?  Can you really see a family driving it? Is it a vintage car with value because of that?  Do you have a better vehicle to donate?  These are all questions you have to ask.

The worthwhile uses of a vehicle, rather than its monetary value, are far more worthwhile to you, your deduction benefit and the charity you choose to donate to.  Charities that use automobiles to help fulfill their mission, such as reducing poverty, or organizations that assist the elderly are often looking for good quality, transportation that runs.  When you donate to an organization of that nature, the odds of your car being used rather than sold are high.

If you can find a charity that will not sell your car for a period of two years after they take ownership, you can take the fair market value of the donated vehicle as a deduction.  But this has been severely curbed in recent years because the real value of car donations actually given to charities and the amounts claimed as a deduction on individual and business tax returns differed by more than 95% in some cases.

Now, if a person donates a car that is then sold at wholesale by the charity or its representatives, you can expect a receipt of sale for somewhere between 10 and 15% of the value you could have gotten if you had sold the vehicle privately.  This means that many people who would have made a car donation for convenience sake have now been making regular sales and then donating the cash to a charity.

It is also smart to consider what you will think if you sell an old car that may go up in value in as few years.  Do you really want to do that?  Make sure you donate a car that you really want to get rid of but one that also runs suitably.  In that way everyone involved will get the maximum benefit out of the donation.

This entry was posted on Saturday, December 6th, 2008 at 5:42 am and is filed under Charitable Giving and Auto Donations. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.