Different Options For Donating Your Car for Tax Deduction Purposes

It's hard to read the paper or listen to radio and not hear ads for charitable vehicle donation - regardless of their claims, it take some effort on your part to donate a car for tax deduction purposes and benefit everyone involved. Of course, that's exactly what's supposed to happen, but in practice, agents that handle car donations for charity (and buy those ads) can come out far better than everyone else in such a transaction.

Being able to get your charity of choice the best deal possible, when you donate a car for tax deduction purposes, will also increase the amount you would be able to subtract from your income when figuring your taxes. It is to your advantage to find a charity that can use your vehicle directly, rather than selling it off. Even if they donate it to an individual or family in need, you are allowed to deduct the fair market value of your car, as they would have paid if you'd sold it to them directly.


*Tax Tip: Contributions must be made to "qualified" organizations, including religious, charitable and educational, as defined by section 501(c)(3) of the Internal Revenue Code. That's bureaucratic gobbledygook to most of us. Contributions are frequently received in memory of human family and friends as well as animal companions. We are a non-profit charitable organization relying entirely on donations for support of our programs. Contributions of many kinds are welcomed.


There was a loophole in the 1990's and early 'aughts that caused third-party, for-profit agents to skim as much as 70% from each vehicle transaction at auction. The reliance upon wholesale auction was further complicated by the for-profit reliance of such companies upon economies of scale. Without the help of volunteer labor, it would cost to much to take the time in finding a retail sale. Thus, a vast majority of donated cars for tax deductions were sent to the wholesale market.

This practice was noticed by independent reporters and the US General Accounting Office. This meant that there was a large discrepancy between the amount claimed as "fair market value." Nearly $700 million in discrepancies were found in the year 2000, for instance. Since 2005, for those who've donate cars, tax deductions have been seriously limited and include additional filing requirements.

The fair market value continues to be the price at which you could reliably expect to sell your car for, person-to-person and without any pressure to complete the transaction on either end. Such a retail sale may be an order of magnitude higher that that paid at wholesale auction. In the case of a donated car, tax deductions may not even be worthwhile unless the return on your donation is increased by considering its ultimate fate.