Donors who donate their old vehicles to charity often do so in order to claim a tax deduction. No doubt, getting a tax break seems like a fitting reward for doing something that may benefit other people in the long run. However, while it was possible for the donor to claim the fair market value of a vehicle donation in the past, new regulations now affect the value of a donated vehicle.
Donors need to keep the following things in mind when donating a vehicle for the purposes of a tax deduction:
If the value of the vehicle is below $500, the donor may claim the vehicle’s fair market value. Otherwise, certain restrictions will apply to limit the size of the deduction.
For donations larger than $500, a donor may only deduct the vehicle’s fair market value from their taxes. If, however, the vehicle is sold below its fair market value, the donor may only claim the lower sale value. If any significant repair or modifications to the vehicle is done before selling it, the donor may be able to claim a fair market value deduction for the donation.
Even if they qualify to claim the fair market value of a vehicle, the IRS limits deductions to 50 percent of the donor’s adjusted gross income. This should be taken into account especially when donating a newer vehicle.