Car Donation in Los Angles and Tax Deductions

Car Donation Tax Deductions: The Drawbacks

When it comes to car donations, there is certainly an opportunity to claim your donation to receive a break when it comes time to do your taxes.  Some individuals may even have an opportunity to gain more than the average earned on vehicle donations. 

However, there can be some drawbacks to the process overall that causes some individuals to gain much less from their charitable giving.  Generally, these can be determined beforehand with a relative understanding of the IRS rules and regulations surrounding this type of giving.

Changes in the Car Donation Process

In the past, it was slightly less complicated to donate a vehicle for tax purposes.  Typically, the value of a donor's tax claim would have been equal to the market value of their car, a value usually based on the listed value of the car by references such as Kelley Blue Book.

However, this process was negatively impacted by taxpayers who used car donation tax deductions as a way to claim much more than the fair value of the vehicle.  Laws have since been put in place to discourage this practice, and the charity's actual use of the vehicle was added as a determining factor in the ultimate value of your tax break.

Essentially, this limits you to some degree in knowing the exact value of your deduction prior to donating your car.  Although you may not be able to pinpoint the precise worth of your donation, certain standard are in place that can give you a general idea.

The Value of Your Vehicle

In some ways, the most recent rules surrounding car donation tax deductions make it easier to determine the value of your car.  This is due to a $500 ceiling applied to the majority of donated vehicles, which usually means that the value of any car over $500 is really determined by the amount a charity receives for it at auction, regardless of the vehicle's actual value in the fair market. 

The limited value of your vehicle as determined by the car’s auction price must then be reported to you within 30 days time for you to include when you file your taxes.  This threshold may be seen as a drawback in itself, especially when cars are auctioned for substantially less than their fair market value. 

For individuals who would like to claim the full value of their vehicle, over and above the $500 marker, the process can become even more complicated.

Claiming the Fair Market Value of Your Vehicle

Claiming the fair market value of your car is possible, and it can provide a significant tax break.  The only drawback is really in the process itself and the paperwork and record-keeping required for the contribution.

If the charitable organization that receives your donated vehicle actually uses the car for nonprofit work, such as delivering food or transporting the less fortunate to appointments, you may be able to claim the fair market value of the car, regardless of its ultimate selling price.

This can also be accomplished if the charity conducts significant repair or makes major improvements to the vehicle, thus increasing the car’s value.

For a car donation in Los Angeles that fit these circumstances, there are a number of recordkeeping and filing requirements, and your responsibilities as a donor increase with the fair market value of the car.

While donating your car isn’t as easy as it used to be, it is still a contribution that can help a worthy organization and give you a tax break in the process.  There may be drawbacks to tax deductions, but anyone who wants to take part in this type of donation should be able to work within the IRS guidelines and benefit from the process overall.