A car donation is the next best option if your car is not working for you and you don't want to sell it. There are numerous charity organizations you can help, and you can also benefit from a donation with a tax deduction.
You first need to research charity organizations and determine which ones are qualified for tax-deductible donations. Organizations that qualify usually have a 501(c)(3) IRS status.
To make this easier, you can go to the IRS page and search for it in the Tax-Exempt Organization Search Tool. Alternatively, you can call the IRS and read them the charity name and address. You should also ensure that the organization is legit to avoid getting scammed and ensure the donation goes to the right cause.
After donating, you must itemize the deductions you want to benefit from the contribution. If you don't, the claim will be a standard deduction set by the IRS, which might not be as helpful.
Whether the organization wants to sell or use the car, you must get a written acknowledgment for your donation. This contains your name, Social Security Number, Vehicle Identification Number, contribution date, and confirmation that you did not receive services or goods for your donation.
If the charity sells the car, it limits your donations to the proceeds they get from the sale, even if they sell it below your car's value at the time of donation. For example, if the organization sells your car for $3,000 but its value is $4,000, that caps your deduction at $3,000.
If the charity organization sells your car for $500 or below, your deductions can be the vehicle's fair market value or $500, whichever is less. If, for example, your car's fair market value is $700, but the charity sells it for $450, you may deduct $500.
Once they sell the car, the charity organization should send Form 1098-C or a similar form in the next 30 days after selling it. It contains the date of selling the vehicle, the gross proceeds obtained from the sale, and clarification that the organization did not sell it to someone working in the organization or other related parties.
If the charity organization did not sell the car but used it in the organization, your deductions will be based on your car's fair market value. In this case, you don't have to present form 1098-C as the acknowledgment form will prove the organization kept the vehicle.
When you file your tax returns for the next year, you must attach forms 8282, 1098-C, and the acknowledgment form. Ensure they contain all the information necessary, as an issue with the documents could make you lose the benefits.