Step 3: Determine the amount of
your deduction
The exact amount of your deduction is dependent on
what the charity does with your vehicle and on the vehicle’s
value. Let’s break it down.
IF THE CHARITY… YOUR TAX DEDUCTION
IS…
Uses the vehicle for its own
purposes (such as delivering
food to the needy or giving
it to a needy individual)
the fair market value of
the vehicle.
Junks the vehicle or sells it
for less than $500
the fair market value of
the vehicle up to $500, as
determined by the donor.
Sells the vehicle for more
than $500
the full final sale price of
the vehicle.
Now, for an important definition: what is the “fair market
value” of the car?
Fair market value is defined as “the price at which the
property would change hands between a willing buyer
and a willing seller, neither being compelled to buy or sell,
and both having reasonable knowledge of all the necessary
facts.” In other words, the price you could reasonably
expect to get for the vehicle on the open market. This is
not necessarily identical to the “blue book” value of the
car, as factors such as engine or body trouble or excessive
wear could decrease the vehicle’s value and significant
improvements might increase the value.
Quick tip: You can use a vehicle pricing guide such as
this one from Kelley Blue Book to determine your car’s
value based on its current condition.
Step 4 (cont.)
If you are claiming the fair market value of a vehicle that
will be used by the charity for its own purposes or the
charity will be making material improvements to the vehicle,
the IRS also requires written acknowledgment from
the charity describing how the vehicle will be used or improved
and certifying that it will not be sold before said
use or improvement. The IRS Guide to Vehicle Donations
for Donors explains this in more detail.
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