How to Get the Biggest Tax Refund for Your Car Donation

To qualify for a tax deduction, the organization must be listed as a 501 (c)(3) not-for-profit tax entity. Most religious organizations, such as churches, synagogues, mosques, and temples, qualify as nonprofits with the IRS. You can check this status by contacting the organization directly or by using the IRS Exempt Organization Select Check's website.

Some charities are more familiar with the ins and outs of car donation than others. In fact, your favorite nonprofit may refuse to accept vehicle donations because auctioning them off requires a huge investment of valuable staff time and resources. If your heart is set on helping a specific nonprofit that doesn't deal with vehicle donations, consider selling the car yourself and donating a portion of the proceeds to the organization you love. But if you're definitely going to donate your car to a charity, the IRS requires you to do this in one of two ways:

1. As a deduction valued at the vehicle's sale price when the charity auctions your car off
2. As the vehicle's fair market value 

Tax deductions after you've donated a vehicle to charity are actually relatively simple and only require a few steps to complete. Keep these four steps in mind when you're ready to donate your car.

If you donate your car to a charity that then auctions it off for $5,000, that's the amount you'll list on your tax form for the deduction. Even if your vehicle's fair market value exceeds $5,000, your tax deduction amount is limited to the actual sale price. Charities, in turn, are required by the IRS to list your vehicle's sale price on Form 1098-C when they file their taxes.

However, there are some exceptions to this, such as if the charity decides to keep your vehicle. In such a case, you'd be able to claim your car's fair market value as your tax deduction amount. Another special circumstance is if your vehicle sells for below $500. In this case, you're allowed to either deduct your car's fair market value or $500. So, if you donated a $700 vehicle to a charity that sold it for $275, you could list the deduction as $500.

A few resources are available to help you calculate your car's fair market value accurately, but one the IRS recommends is the Kelley Blue Book, which can be accessed online. You'll research your vehicle's make, model, and condition to get specific pricing. Note that if your car's fair market value is above $5,000 and you'll be donating it to list as a tax write-off, you'll be required to get a written appraisal to document proof of its value when you file your taxes.

You'll need to provide certain forms when you claim your donated vehicle as a tax deduction. Be prepared to request a document with the following information from the charity you're donating to:

• The VIN of the vehicle
• Your full name and contact information
• Details of what, if anything, you received in return from the charity for the vehicle donation
• The date of the vehicle donation

Note that you're only allowed to claim a tax deduction for your donated vehicle if you itemize it. When filing your tax return, your vehicle donation will need to be listed on Schedule A.

The amount of money you claim for your vehicle donation on your taxes will determine which kind of form you need to fill out. Donated vehicle deductions with values between $501 and $5,000 will be listed in Section A of a tax return, whereas deductions greater than $5,000 will be listed in Section B. Remember that you'll also need a written appraisal of your vehicle if its value was above $5,000.

Donating a vehicle to charity can be rewarding in several ways. Follow this guide to ensure you receive the biggest possible tax deduction for your charitable donation. If you have any further questions or concerns, contact a local CPA.