Goodwill Donations and Your Taxes

"Will I be eligible for a tax deduction for my Goodwill donations, particularly my vehicle donations?"

This concern is probably one of the most frequently asked questions received at charities with a car donation program.  And it's no wonder -- the IRS laws surrounding car donation tax deductions can be more than a little confusing.   Follow the guidelines below to get the most out of your vehicle donation tax deduction.

First, always make sure that the organization you choose is an eligible institution.  One easy way to verify the charity is to check that they have the 501(c)(3) classification. If you're still not sure whether they are legitimate, try looking on the IRS website.  There you will find many more resources to confirm that they are a true non-profit establishment.

Second, in order to be given a tax deduction for your vehicle donation, you must itemize your deductions on your taxes.  All this means is that you must list your deductions out, in detail, on the proper IRS form.  Not sure what types of things constitute as deductions?  Refer to your local tax advisor and they can give you information on exactly what to itemize.  If you do not itemize your deductions, unfortunately you cannot receive a tax deduction.  However, you can still donate your car and take advantage of the free towing and good feeling helping those in need produces.

Third, stay on top of the changes in the tax laws.  Beginning January 1, 2005, new laws surrounding car donation tax deductions went into place to streamline the tax process.  Ultimately, these new policies give the donor two options based on what the car sells for at the public charity auction.

The first option is if your vehicle sells for $500 or less at the auction.  In this case, you may write-off the fair market value of the vehicle up to $500 without further documentation on your taxes.  It is up to you to determine the fair market value of the vehicle.  When you get your car donation receipt in the mail from the charity, you will not need to submit it with your tax return.

The second option requires a bit more paperwork.  Here, if your donated vehicle sells for over $500, you may write-off the fair market value up to the price the vehicle sold for.  For example, if the car sold for $950, you may write-off that amount.  However, if the vehicle sells for over $500, you will receive a 1098c form in the mail from the charity and you must include that with your other paperwork at tax time to get the tax deduction.