Should I Donate My Car to Charity for a Tax Deduction? Here’s What You Need to Know

Donating your car to charity can be a meaningful way to support a cause you care about—and if you itemize deductions, it might also offer a valuable tax benefit. But before you hand over the keys, there are several steps you need to take to ensure your donation is tax-deductible and aligns with your broader charitable and tax planning strategy.

Below, we break down how to navigate the car donation process, the IRS rules you need to follow, and how to ensure you maximize your charitable impact.

Step 1: Choose a Qualified Charitable Organization

Not all charities are created equal when it comes to tax deductions. To qualify for a deduction, your car must be donated to a 501(c)(3) nonprofit organization or a religious institution that meets the IRS guidelines.

• Use the IRS’s Tax Exempt Organization Search to confirm an organization’s eligibility.
• Religious institutions like churches and synagogues are considered qualified charities even if not listed in the IRS database.

• You can also call the IRS Customer Account Services division for Tax Exempt and Government Entities toll-free at (877) 829-5500 to find out if an organization is qualified.

Step 2: Determine Your Car’s Fair Market Value (FMV)

Your tax deduction is generally based on the FMV of the vehicle at the time of donation. This can vary depending on the car’s age, mileage, condition, and market comparisons.

Tips for estimating FMV:

• Utilize resources such as Kelley Blue Book or the National Automobile Dealers Association (NADA).
• Compare prices for private party sales of similar vehicles in your area.
• In certain circumstances, if the tax deduction you claim for your car is greater than $5,000, you may need a written appraisal of the car’s FMV from a qualified appraiser. The appraisal must be made no more than 60 days prior to donating the car.

Step 3: Gather the Right Documentation

The IRS requires increasingly detailed documentation based on the amount you plan to deduct:

Form 1098-C is required if the charity sells or uses the vehicle in a specific charitable capacity (either of the last two options). The charity must send this form within 30 days of the sale or, in certain cases, within 30 days of the donation. You must attach a copy to your return.

Planning Tip: If the charity sells your car and you claim a deduction of more than $500, you can deduct the lesser of (1) the gross proceeds of the sale (as indicated on Form 1098-C), or (2) the car’s FMV on the date of your contribution. However, if the charity doesn’t sell the car, but instead elects to (1) make a significant intervening use of it or materially improve it prior to its transfer, or (2) give away the car or sell it at a price well below its FMV to a needy individual in furtherance of its charitable purpose, you can generally deduct the car’s FMV at the time of your contribution. In this instance, Form 1098-C should indicate which of the two exceptions applies.

Step 4: File the Proper Tax Forms

Here’s how to report your donation when it’s time to file your taxes:

• Form 1040 and Schedule A: Required for all deductions related to charitable contributions.
• Form 8283: Needed for deductions over $500. Use Section A for up to $5,000 and Section B for more than $5,000 (Section B should be signed by an authorized charity official and attached to your return.)
• Form 1098-C: Needed for deductions over $500. Attach to your return if applicable.

Important Note: You can only deduct the donation in the year the car is transferred to the charity, even if the charity sells it in a future year. If you receive the Form 1098-C after you file your return for the year of the donation, you may then file an amended return for that year, claim the deduction on the amended return, and attach Form 1098-C to the amended return.

Tax Filing Requirements – Amount of Deduction

When FMV Can Be Used Instead of Sale Price

If the charity uses the vehicle for a charitable purpose or gives or sells it at a significant discount to someone in need, you may be able to deduct the car’s full FMV instead of the sale price. The charity must state this use clearly on Form 1098-C.

Important Note: Because churches, synagogues, temples, and mosques are treated as exempt organizations without applying for exemption under Internal Revenue Code Section 501(3)(c), they are not listed in Publication 78.

Maximize Your Impact with a Coordinated Tax Strategy

Donating a vehicle is just one piece of the puzzle. The true value of charitable giving lies in its alignment with your overall financial and tax strategy. At Mission Wealth, we specialize in charitable planning that complements your tax strategy, helping you maximize your deductions, minimize your tax burden, and make a lasting impact.

If you’re thinking about donating a vehicle or making other charitable contributions, talk to our team of advisors today. We’ll help you structure your giving in a way that aligns with your values and financial goals.