Car Donations - Tax Reduction Options
A car donation is an ideal way to get rid of an old car. When donating a car, all you need to do is to get in touch with a car donation services outfit and it will take care of all the aspects of your car donation. Donating your car to charity comes out easier and faster than selling your old car to the market.
A good thing about making a car donation is that you are able to help people in need and at the same time gives you tax rebates in return. The government gives you a proportionate deduction from your taxes equivalent to the amount valued from your car donation.
It is important that before you actually make a car donation, you first determine the actual amount of tax deduction you will be getting. In the case of the United States, there is a revised federal tax law on car donations where you will find the amount of car donation tax deduction due you. In this law, there is discussion on the two possible amounts for your car donation tax deduction, and these are the fair market value and the gross sales amount of your car.
Prior to the tax legislation in 2005, the amount used in assessing the car donation was the car’s fair market value which was then used for the donor’s tax deduction. This was alright until the tax officials learned that the owners were declaring the fair market values for their donated cars while basing them on the makes and models of the cars without taking into consideration the condition of the cars.
When the donor and the car donation service company agree to the fair market value of the car, the donor normally takes into consideration the documented value as the fair market value without considering the depreciation cost and the need to repair the vehicle.
The car donation services would either repair the donated cars first or sell them on an as-is, where-is basis, where the real fair market values are considered. What happens is that when the donated cars are sold by the car donation services outfit, the inflated fair market values do not match the selling prices of these donated cars. The 2005 tax legislation corrected this misalignment by permitting only the gross sales amount of the donated cars to be the value of the donor’s tax deduction.
If certain conditions and documentation are duly met and fulfilled, the 2005 law can still allow for the use of the fair market value to be used for the tax deduction of the car donation. It is worthy to note that these car donations service outfits do not only deal with donated cars.
These companies determine also if they will be using the donated car for charitable purposes or grant the car to a person or family in need. When the donated car is used for these purposes, the revised tax law permits the fair market value to be used for the donor’s tax deduction.