Donating Your Car To Charity
Quick tips on what you need to know if you're considering donating your
car to a charity in exchange for a tax deduction. The IRS has implemented
strict new rules concerning car donations. You must pay close attention
to the new Significant Use and Material Improvements clauses.
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Donating a car to charity is not that difficult. However, you need to be
aware of the tax regulations before you donate your car to a non-profit
organization. The IRS provides some general rules of thumb on car
Starting in 2005, if the claimed value of your donated car exceeds $500
and the item is sold by the charitable organization, your tax deduction
is limited to the amount of money the charitable organization actually
receives from selling the vehicle.
The charitable organization must provide you (the donor) with a written
acknowledgement within thirty days of the sale, specifically stating the
net amount they received for selling your donated car.
As an example, let's say you make a car donation to a non-profit charity,
and the fair market value of that car is $5,000. The charity then sells
the car without "significant use" or "material improvement", for a total
sale price of $2,500. Your deduction is limited to $2,500, not the $5,000
fair market value.
This is substantially different than earlier years when you could deduct
the entire estimated fair market value instead of the amount that the car
donation actually raised for the charity.
Another caveat is that many non-profit organizations use a third-party
administrative service to handle the pick-up and auction sale or your car
donation. The resulting administrative fees are often 20% or more of what
the car sells for at auction.
Your tax deduction is correspondingly lowered by the amount of third-
party fees because the net amount the charity receives has been reduced.
In the example above, your car donation deduction would be reduced from
$2,500 to $2,000.
There are a few exceptions to these car donation tax deduction rules of
thumb that are recognized by the IRS.
Car Donations: Significant Use & Material Improvements
If the charity significantly uses or materially improves the vehicle,
they must certify that in the form of an acknowledgement to the donor
(within 30 days of the contribution).
In the case of significant use or material improvement, the donor may
usually deduct the vehicle's market value ($4,000 in the example above).
To be considered "significant use":
An organization must use the vehicle to substantially further its
regularly conducted activities.
The recipient organization's use of the vehicle:
1 - Must not be insignificant
2 - Must not be intended at the time of the donation
Significance also depends on the frequency and duration of use by the
"Material improvement" includes major repairs or other improvements that
significantly increase the vehicle's value.
Cleaning the vehicle, minor repairs, and routine maintenance are not
Make sure you don't get misled by a car donation sales pitch claiming
higher tax deductions than the IRS allows.
See IRS Publication 561, Determining the Value of Donated Property