Our life becomes beautiful when we get the chance to do something better, especially for humanity. I believe one of the innovative ways to do that is donating your car and serve humanity. By donating your car to charity with an intention to do something good not only will be a service to humanity but will also get you some financial benefits at the same time.
If you’re thinking to donate a car for the tax credit, then I must say you’re a wise person. But most of the time maximizing your tax benefit appears more complicated even all the necessary documents are ready. The whole process creates confusion if you do not have the proper answer to the tax questions. Remember, it’s a great way to get a federal tax deduction.
Sell Price by Charity: The charity obtains a price for your car. This price becomes vital to claim the tax deduction. This amount will be considered like a sealing for a tax deduction limit. This price will influence lots of aspect even the fair market value. As an example, if the fair market value is higher, then the value the charity obtains for your car, then the sealing is not going up for a tax deduction.
You do not need to worry about the price because most of the charities sell the car to needy people. Lots of people want to buy cars from the charity for own use. That’s why you can get the price of your donated car close to fair market value.
Fair Market Value: There are two concepts you must know about the price of the donated car. One is the value of the sell by the charity and another one is the fair market value. Fair market value is essential when you need some guideline about the price. The fair market value defined as “the price, the buyer would pay and seller would accept for the vehicle.”
This method is suggested by the IRS (Internal Revenue Service). But getting the fair market value is rare. Getting the price idea becomes easier because of the blessing of the internet. Some people also use the Kelly blue book to get the price idea. The price varies according to the various types of factors like the present condition of the car, model, trim level, mileage, etc.
The Claim: It’s time to claim the deduction. If you are certain about the price of your donated car then report the amount. You have to mention it 17 of schedule A. Before you do the claim, itemize it carefully. If your car is the only donation then you can itemize it. It’s the only way to claim the deduction. There is a term mentioned in Schedule A.
Fill your status if the amount exceeds the standard deduction. Maybe it will be a great step as the biggest tax saving. Some people can save thousands of dollars because of it. If the car value is higher than $500 but sold under $500, then you can also claim for the deduction.
Sections Need to Fill up: According to the sealing of the price, you must fill the form in various sections. But the value must exceed $500. Before filling the sections of the form you need to know the sealing. You are qualified to complete Section A if the deduction is more than $500 and less than $5001. Complete Section B if the deduction value is more than $5000. One more thing you must obtain if you complete section B and that is the written appraisal. It will work as a hard document.
Not all charities can offer you these types of facility. Only some qualified charities have this option. Qualified charities mean that charity, which is recognized and registered by the IRS as a 501© (3). Some religious organization can be the same which also able to provide a tax deduction in favor of you.
The important question is how to check the registration status, you choose to donate your car and claim the tax deduction. The simplest and easiest way is checking in online. There is a search tool available provided by the IRS named ‘exempt organization search tools’. This tool will give you the list and show you that the selected charity is exempted or not. If this process seems a hassle for you then you can call IRS toll free number.
Collect All the Necessary Documents
Donating a car to charity is not the last thing that you need to claim the tax deduction. You just need to keep all the record crystal clear. All these papers will need when the taxation year going to end and tax time comes around. If you are in confusion about the documents, then you can follow the IRS guide. It will help you to suggest what document you need to get a tax deduction by donating a car.
The basic things you will find from the documents provide by the charity are few. It includes the name of the car owner, vehicle identification number, all the description of your vehicle and the services you received and the date you donated your car. But the crucial document you must need to claim the tax deduction is the tax receipt.
If your car’s sales price is under $500 then you will get it. If you get this paper, then there is no additional paper you need for the tax deduction. Most of the information that you need is highlighted in this paper. All the key information is given below.
- Year, make, model, VIN
- Date of contribution
- Federal EIN
- A statement that the vehicle was sold through two unrelated parties
- A declaration where mentioned that no good or services were provided in return related to this donation.
Not individuals, but also lots of small businesses are donating their cars to get the best tax benefit. It becomes a popular way of a tax deduction. Maybe you are not looking at your car anymore to make it operational or repair. You may know that charities don’t mind to accept all types of vehicle in any condition as a donation.
Following a proper process can decrease your headache to claim a tax deduction. Most of the charities handle it easier to deliver all the paperwork that you need. So, donate your car and get all your support for a tax deduction.