HOW TO GET A FULL TAX REFUND FOR YOUR DONATED CAR
Most donated cars are quickly flipped for cash. The donor can only deduct what the nonprofit receives. Nearly every car donation is handled this way.
So, on average, your $3,000 car would be sold for about $1300 or so at a mass auction, a third party car donation service would take about 50% for facilitating the sale, and you could deduct a donation of $650.
Your $3,000 car is recorded as a $650 donation, and that is what you can declare. This is, overwhelmingly, the most common method of car donation.
If you want to get a maximum refund for your donated car, you have two options.
First, you could sell the car yourself on the used car market. Most people would rather not deal with the hassle, but you would assure that your charity would receive $3,000 instead of less than $650. You could then declare a $3,000 cash contribution on your taxes.
The other option is to give the car to a charity that will use the vehicle. Copied below is the IRS guidelines. If you donate a car to be sold (as almost every car donation is done), then you can deduct the value that reaches charity (35% of the car’s flipped value on average). If the car is used for charitable services, the donor declares the full market value.
In the Greater Cleveland area, Wheels to Work is an option. We act as a third party that gets the car into the hands of someone who needs it, instead of flipping the car for quick cash. By the nature of our organization, we always meet the requirements for the full deduction.
Below is the full quotation from the IRS website found here: https://www.irs.gov/charities-non-profits/charitable-organizations/irs-guidance-explains-rules-for-vehicle-donations
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In Notice 2005-44, the IRS and Treasury explain rules adopted in the American Jobs Creation Act of 2004, which (1) generally limits the deduction to the actual sales prices of the vehicle when sold by the donee charity, and (2) requires donors to get a timely acknowledgment from the charity to claim the deduction.
Donors may claim a deduction of the vehicle’s fair market value under the following circumstances:
The charity makes a significant intervening use of the vehicle, such as using it to deliver meals on wheels.
The charity makes a material improvement to the vehicle, i.e., major repairs that significantly increase its value and not mere painting or cleaning.
The charity donates or sells the vehicle to a needy individual at a significantly below-market price, if the transfer furthers the charitable purpose of helping a poor person in need of a means of transportation.
