Avoid Triggering A Tax Audit When You Donate Your Vehicle

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Avoid Triggering A Tax Audit When You Donate Your Vehicle

12 June 2017
 Categories: , Blog

Donating your vehicle to a school or charity is a good way to recycle an old vehicle that would otherwise rust away in your driveway. However, it's important to be smart about your donation; otherwise you may accidentally trigger an IRS audit of your finances. Here are two important things you need to do to get the tax benefit of your donation without any of the pain.

Have High-Value Cars Appraised

One of the top ways people reduce their tax liability is by making charity donations. Unfortunately, it's also one of the most abused tax deductions. If you don't normally claim a large amount for donations and suddenly have one for several thousand dollars, you increase your chances of being audited, especially if the amount exceeds the average for people in your income bracket.

For low-value vehicles, you can typically get away with just obtaining a receipt from the charity. For vehicles valued over $5,000, though, you must have the vehicle appraised to ensure it is really worth the amount you claim. This is because many people overinflate the value of cars as a way of getting a bigger tax deduction, and the IRS wants to make sure this is not happening in your case.

In case you're wondering, you can use the Kelly Blue Book value for cars under $5,000 but not for those over that amount, likely because KBB can't fully account for the vehicle's actual condition. It's best to take the vehicle to a dealership or a business that specializes in appraising vehicles to get an estimate of its fair market value and have the appraiser sign the appropriate section on your tax form.

Ask the Charity What Will Happen with the Vehicle

It's important to ask the charity or school what they plan on doing with the vehicle, because it will affect the actual amount you can write off your taxes. If the charity will resell the vehicle to the public, then you need to have the company notify you about the amount because this is real amount you can write off regardless of the vehicle's real market value. You can only write off $2,000 if the vehicle is sold for that amount to a private party, even if it's valued at $10,000 for example.

Be certain to get a receipt from the charity as proof of what it sold for so you can submit it to the IRS. It may also be a good idea to take pictures of the vehicle to show what condition it was in when you donated it, just in case you do get audited and need to provide evidence the vehicle was worth the value it was appraised for.

For more information about writing off a car donation or to give your vehicle to charity, contact a local organization that handles this type of donation.