- When you donate your car to a charity that sells it to raise money, the IRS reduces the value of your deduction from the fair market value to the selling price of the car. For example, if your car's fair market value equals $7,800, but when the charity auctions it, the car sells for $5,400, the IRS limits your income tax deduction to $5,400.
- If your car is valued at $500 or more and the charity sells the vehicle for less than $500, you can deduct $500. For example, if your car has a fair market value of $675 but it only sells for $400, you can deduct $500 from your income taxes. Similarly, if your car was worth $9,000 but only sold for $450, you would be able to deduct $500. However, if your car is worth $9,000 and the car sells for $5,000, the exception would not apply because the sales price is over $5,000 and you would be able to deduct $5,000. If your car is worth less than $500, you can deduct the greater of the fair market value or the selling price. For example, if you donate your car worth $475 and it sells for $350, you would be able to deduct $475 on your taxes.
- The IRS makes an exception if the charity intentionally sells the car below the fair market value to a needy individual or family as part of its charity work. In these cases, the IRS allows you to deduct the fair market value. For example, you might donate your car to a charity that helps poor families get cars. If you donate a car worth $4,500, but the charity sells it to a needy family as part of its mission for just $1,500, you would be entitled to deduct the fair market value of the car.
- The IRS does not require you to reduce the deduction amount if the charity keeps your vehicle and uses it as part of the charity. In these cases, you can deduct the fair market value of the car. For example, if you donate a $6,000 van to a charity that keeps the car so it can take special needs kids to events and medical appointments, you can claim the full fair market value of $6,000 as your deduction.
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