Vehicle Fair Market Value in Car Donation: Why You Need to Know It
78What is Fair Market Value?
The fair market value of a car, according to the IRS, is the price that a willing buyer would pay to a willing seller.
"Willing" means that neither buyer nor seller desperately needs to transact quickly or in a way that alters the worth of the car--they just want to buy and sell for a fair price--and all facts about the car are disclosed to both parties.
The fair market value of your car is important when getting a car, boat, truck or motorcycle donation write-off because of a tax law that came into effect in 2005. The law says that when you donate vehicles and get a tax write-off of more than $500, you must deduct either the resale/salvage value of the car or the fair market value of the car (which is usually greater.)
And you don't get to choose which. Previously, you could deduct the fair market value for any qualifying car donation. Now, how much you're allowed to deduct is decided by the way the recipient charity uses the donated car.
How do you know which amount you can deduct? You only get to write off the fair market value of the car if the recipient charity donates the car to a needy person, sells it to the needy at a significant discount, or puts it to otherwise charitable use for its own purposes.
If the charity or non-profit organization sells it and uses its proceeds for its own non-profit purposes, then you must deduct only the resale value.
- Either way, for amounts greater than $500, you need to get a written acknowledgement from the charity.
- Refer to IRS Publication 561, Determining the Value of Donated Property, or search a used car buying guide, such as the Kelley Blue Book, to calculate the fair market value of your used vehicle. The guide will help you figure out the value of a car that's in a comparable state to yours. So if you use the pricing guide, make sure it's for the exact same make, model, and year of the car, as well as equivalent options and accessories, and in the same condition. The fair market value will never be greater than the private-party sale price, so refer to that price for the maximum fair market value price.
- The used car, boat, truck or other vehicle must be drivable and usable in order to have its fair market value deducted from your income on your taxes.
- In the event the used vehicle is in bad condition and a true junker with no redeeming qualities, it's destined for salvage or being sold on auction. In this case, you'll only be able to deduct the sale or salvage value on your taxes--which still can be a considerable chunk of cash.
- Vehicles valued at more than $5,000 must be professionally appraised in order to take a tax deduction for the car donation.
Further Reading on Vehicle Donation
- Car Donation Fraud: How to Recognize a Car Donation Scam
If you're planning to donate your car, boat or other vehicle to a charity, then you should be aware of the potential for scams and cons with car donation centers. Although it's a common practice for... - How to Donate Your Car to Charity and Get a Tax Write-Off
Getting rid of your used car--or even an old motorcycle, truck or boat--isn't quite as easy as picking up the phone, but it's not difficult. And if you donate your vehicle to charity, you can also take a tax deduction in certain cases. - Charities That Accept Vehicle Donations (Car, Boat, Truck)
Which charities accept car, boat, RV, motorcycle and other donations? Find a list of the major charities that accept vehicle donations or learn how to choose a qualified charity so you can take a tax write-off on the donation when you itemize your de - Vehicle Donation: Can Cars, Boats, Trucks and Motorcycles Be Donated to Charity?
If you are considering donating a vehicle to a charity or religious organization, you may be wondering what kinds of vehicles are accepted by vehicle donation centers. Besides cars, motorcycles, trucks, and... - How to Get a Tax Deduction for a Car Donation: Donate That Old Junk Auto and Save
If you're donating a used car, whether it's a junker or a luxury vehicle, you could get a tax deduction. Learn how to write off a vehicle you donate to charity. - Donating a Vehicle for Tax Deduction: Resources and Helpful Links
This is the links and resources page for the series of informative articles on vehicle donation in the United States. The articles cover the FAQ of vehicle donation tax write-offs for the most common scenarios.
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