When you donate a car, how does the tax benefit work?

Question

I mean lets say you get $500 credit for donating a car and my taxes were $2000. So now when I file for taxes, do I get $500 off my tax returns (which means I pay $1500 in tax) or only a % (which will be your normal tax deduction) of 500 off ( which means I get relief 25% of 500 which is 125) tax returns?

Answer 1

1. You donate the vehicle to a registered charity.
2. The charity sells the vehicle.
3. The charity sends you a letter telling you how much they received.
4. You can claim an itemized deduction for the amount in the letter.

If you don't itemize deductions, you get zero benefit. Itemizing is only worthwhile if your total itemized deductions exceed your standard deduction. The standard deduction for a Single filer in 2006 was $5,150 and for 2007 it will be $5,350.

If you do itemize, deductions reduce your taxable income. If the charity sold the car for $500, your taxable income would be reduced by $500. To determine your benefit, multiply that by your marginal tax rate -- the rate that the last dollar of income was taxed at. Rates vary from 10% to 35% depending upon your total taxable income. So, if you are in a 15% tax bracket (likely with only $2,000 in total tax liability) the total value of the deduction would be 15% of $500 or $75.00

Answer 2

I got all information from the charity that I used for my donation but if your charity does not offer such information I recommend to visit http://taxbenefit.cardonatehelper.org

Have fun with your research and even more with the results of your donation - sharing just make more happy than anything else :)

Take care!

Tarsha
It's Official: Sharing Makes Us Happier!

Answer 3

You don't get the whole amount taken off your taxes. The organization gives you a form saying how much they sold it for, and you can take that much as an itemized deduction if you itemize. If you're already itemizing anyway, then your income would be reduced by, in your example, the $500, so your tax reduction would be that amount times your bracket - if your bracket is 25%, then your tax would be reduced by $125.

If you take the standard deduction, there is no tax benefit.

Answer 4

Under the new law, allowable deductions for charitable contributions of vehicles, boats and airplanes (collectively referred to as "assets" in this summary) for which the claimed value exceeds $500 will depend how the asset is used by the recipient charity. If the organization sells the asset without any significant intervening use or material improvement, the donor's deduction is limited to the gross sales proceeds received by the charity. But, if the organization uses the asset in direct furtherance of its charitable purpose the donor may deduct the "fair market value" of the asset. (According to the IRS, the donor, not the recipient charity, must determine the "fair market value" which the IRS describes as the price that a willing buyer and willing seller would agree upon if neither were pressured to do so. Assistance with vehicle values can be found at Kelly Blue Book's web site)

Answer 5

Assuming you have other sufficient deductions to get you above the standard deduction base, you may claim the value of the automobile as a charitable contribution. The value to you will depend on your tax bracket. As an example, if the car is worth $500, and you are in a 28% bracket, you will receive a tax benefit of $140, which is 28% of the value of the donation.

If you do not have sufficient other deductions to qualify you for itemizing deductions, you get no additional benefit.

Answer 6

You can't use it because you don't itemize deductions. (You take the standard deduction, which is a great deal more than $500, so you make out on the deal.) You can't let your mom use the deduction, since it wasn't her car. You would both get into trouble that way.

Answer 7

A donated car, or any charitable deduction, is a reduction of income, not a credit of tax.

You only would save a % of tax.

Answer 8

its only helpful if you make enough money to itemize your deductions. (my moms an accountant)