Is your car donation worth the tax deduction?

Is your car donation worth the tax deduction?

Interested in donating a vehicle, but not certain if the tax deductions are worth it? The process of getting a tax deduction can be a bit involved, but if you take the time to learn all the nuances surrounding the laws and regulations that govern vehicle donations, you’ll be able to benefit in a big way. With that being said, let’s take a more in-depth look at the process of donating a car and its many benefits.

Benefits of vehicle donation

When people generally think about donating a vehicle, one thought is typically running through their minds — tax write-offs. While the tax benefits are usually the primary driving force behind vehicle donation there are several reasons why you should consider donating your vehicle:

Clearing room in your garage

Old cars tend to sit and take up space. They’re no longer being driven, so they become dusty and eventually fade into the background of your driveway or garage. Donating your car will allow you to free up that space. Plus, all fees associated with the vehicle in terms of general upkeep and insurance will disappear when it’s donated.

Eliminates the need to sell the car yourself

If you try to sell the vehicle yourself, you’ll be in for a long and stressful process. You’ll have to worry about advertising, haggling, and doing everything in your power to sell your vehicle. All of these activities are time-consuming. Donating your vehicle will eliminate this issue.

You’ll be helping a charity

Let’s not forget that the proceeds of your donated car will be directed to a worthy charity. Whether the money helps abandoned animals find loving homes or goes towards helping to feed the homeless, you can rest assured that your money will be used for the greater good. In a sense, your donated vehicle will be beneficial to three parties: yourself, a charity, and the cause that the charity represents.

Here’s how much you can deduct

When a vehicle is donated in fairly good condition, it will likely be auctioned off to the highest bidder. If the final sale price exceeds $500, that price will become your tax deduction.

For example, let’s say your donated vehicle is auctioned off for $5,000. You will be able to deduct that $5,000 from your tax return.

On the flip side of the coin, if the vehicle sells for less than $500 you can deduct the fair market value of the vehicle.


After your vehicle has been sold at auction, you should receive a receipt for your records. Receipts should include three crucial pieces of information:

  1. A statement that no goods or services were received for your contribution.
  2. The gross selling price of the vehicle.
  3. A statement that the vehicle was sold between two unrelated parties.

Double-check your receipt to ensure that all relevant data is present.

Understand the rules that the IRS has in place concerning vehicle donations

Always know what you’re getting yourself into before jumping in, especially if you’re looking for a deduction on your taxes. First and foremost, you’ll only see a tax deduction for your donated vehicle if you itemize your deductions.

It’s also important to know the resale price of your donated vehicle for your tax records, which is only the case if your vehicle is worth more than $500. Make it a point to obtain these records from the charity.

If the charity doesn’t sell your vehicle donation but instead keeps it to perform charitable work, or if its value is worth less than $500, you can report its Fair Market Value (FMV) as mentioned above.

Finally, if you donate your car to a charity that sells marked down vehicles to low-income buyers, you can either deduct $500 or the Fair Market Value of the vehicle, whatever one is cheaper.

In the end, donating your vehicle purely for the sake of the tax deduction is well worth it to many donors nationwide, though it comes down to a case by case basis as each person will receive a different amount based on the value of their vehicle. Honestly, even if you receive a $500 deduction, that’s still extra money that stays in your pocket and you certainly can’t complain about that. Plus, you’ll be helping someone in need by donating to a worthy charity. When it comes to car donations, everyone wins.

Featured image credit: mohamed_hassan / Pixabay

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