Person holding car key.
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Donating your used car to a charity may bring you joy for helping another person in need, especially as prices for both new and used cars remain high.
However, don’t expect the move to make a huge difference in your taxes, experts say.
That’s because charitable contributions are claimed as itemized deductions on Schedule A — and most taxpayers don’t itemize.
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“Before you’re even talking about charitable gifting even making any sense,” a married couple must have more than $27,700 — their standard IRS deduction for 2023 — in itemized deductions, said certified financial planner Tommy Lucas, an enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.
Those might include charitable gifting, as well as real estate and property taxes, mortgage interest, medical expenses exceeding 7.5% of adjusted gross income and other qualifying expenses.
“Your average everyday American is not spending $30,000 on those items,” Lucas said.
When you donate a car, your tax deduction is typically the price the charity sold it for; however, you can claim the fair market value of the car in select circumstances, such as if the charity uses the vehicle for its own purposes.
“If you donate a $2,000 car and the charity takes it to auction and it’s worth $1,500, then you would only be able to claim $1,500 as an itemized charitable contribution,” he said.
Additionally, the value of non-cash charitable contributions is limited to 50% of your adjusted gross income, which can be a “real hassle” if you’re donating a newer used car, which are “valuable right now,” he said.
If you donate a used car that is worth more than $5,000, IRS rules require a written appraisal for the vehicle, said Albert J. Campo, a certified public accountant and founding partner of AJC Accounting Services in Manalapan, New Jersey. That paperwork may come at an additional service cost, he said.
After you make the donation, the charity has to file Form 1098-C to the IRS, which is a written acknowledgement that they received the car, what the fair market value was and what they sold the car for, said Lucas. They will provide a copy to the donor.
The donor must include the 1098-C when they file their individual tax return, and detail the donation on Schedule A.
If you made more than $5,000 in non-cash charitable contributions, you’ll also fill out Form 8283, Lucas said.
On the other hand, taxpayers can always sell the vehicle and use some or all of the proceeds to make a charitable gift.
“You could just as easily sell it, take the cash and donate it. That would be easier,” Lucas said.
That can mean you get a greater value for the donation, because private sales are likely to be for higher amounts than a car might fetch at auction. Additionally, with cash donations, the deduction limit is up to 60% of annual gross income, he said.
Even if you don’t see a tax benefit, you relieve the charity of the effort and expense of repairing and selling the car.
If you plan to donate a car, make sure the organization is a 501(c)(3) organization, Campo explained. The IRS has its own database where you can search registered nonprofit organizations.
To vet the charity’s integrity and mission, talk to the people at the organization, learn what their plans and goals are. Finally, see if the charity specializes in “selling cars at auction for top dollar,” or if they would be able to sell it for more than you could, Lucas said.
If you have a car that is maybe worth $5,000, see if they could get that amount at auction. If they can’t, you might be able to help the charity more by selling the car for $4,000 and “just give the cash at that point,” he added.