In the good old days (before 2005), taxpayers could donate a car to charity and claim a deduction for the fair-market value of the car. It didn’t matter if the charity only sold the car for a few-hundred dollars. The taxpayer could claim a deduction for the fair-market value of the car. That all changed in 2005.
You can still claim a deduction for donating a car to charity, but there are limits on the amount you can deduct. If you donate a car to charity and the charity sells the car as a fundraiser, your deduction is limited to the lesser of the car’s fair-market value or what the charity sold the car for.
You donate a car with a fair-market value of $2,000 to a charity. The charity sells the car at a fundraising auction, but only gets $800 for the car. Your charitable contribution deduction is limited to $800.
You can still claim the fair-market value as a deduction if the charity uses the car as part of its “stated cause” rather than selling it as a fundraiser.
Donating a car to charity is not always a straightforward tax situation, and there are recordkeeping requirements that must be met. It’s best to consult with a tax pro before making such a donation.
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