Charity car donations - what you need to know page 2

Charity car donations – what you need to know

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There are many charities that would be glad to receive your car from the Salvation Army and Red Cross to the National Kidney Foundation. They may give it to somebody who needs it, or they may sell it in a wholesale auction to raise revenue. The charity will likely sell your car and gain from the extra revenue. This is just like in a charity clothes shop only on a much larger scale as most cars will sell for well over $1,000!

The IRS allows you to deduct the “Fair market value” or wholesale of the car from your tax payments, this fair market value is the value you would receive on the private market. Unfortunately this was very confusing and people ended up deducting the price that the dealer would give when you part exchange your car.

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The “Suggested retail price” or the price the dealer will pay you is higher than you would receive in the private market, and so the IRS noticed millions more deductions than it budgeted for, which cost the government a fortune in lost tax revenues.

The problem with this system is not only that the government loses revenue, also the charity hardly benefits at all. The cars are normally sold at an auction and never make very much, managers who ran these ‘charity car’ programs took huge cuts and made the whole idea not really worth it for a charity.

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Mainly because the IRS was losing money, but also partly to help the charities out the IRS changed the rules. Now if your car is worth more than $500 then the tax deduction is limited to the price the charity can sell it for at a wholesale auction or if they keep it then the true wholesale price as determined the day it is put into service. You cannot find out how much the car will sell for before the donation, within 30 days the charity has to give you a statement which must be attached to the tax return to receive this tax deduction.

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