When my aging Chevrolet Monte Carlo began to need repairs every few months, I considered donating the once trusty vehicle to charity. I knew of several charities that would be happy to accept my car in as is condition. The idea to donate the old vehicle seemed so much easier than selling it. No repairs, No answering phone calls, No wasting my time on dealing with "noshows".

The biggest incentive was the tax deduction I would get if I were to donate my car to charity. AT the time I finally decided donation of my car was the best solution, the IRS was allowing donors to deduct the "fair market value" of the donated car from their taxes. So donating the Chevy, whose market value was about $2,800, meant $1008.00 off my taxes (assuming a 36-percent tax bracket). Every year, a lot people use to donate their cars just like this, however ...

Car Donation has Changed
Unfortunately, due to ignorance, confusion or greed, many of the car donors have been deducting the full "suggested retail price" of what a dealer would get for reselling your trade-in instead of the fair market value. That's more than the IRS had intended, costing the government millions in lost tax revenue.
So the "Infernal revenue service" has changed the rules. From now on, if your car is valued more than $500, the deduction is limited to the charity's actual selling price. The donor must attach a statement letter of sale to the tax return in order to receive the deduction. The charity you donated your vehicle to is obligated to provide the statement within 30 days. You are not entitled to know the deduction amount before donating your car.

So ... Is it worth it to Donate a car to charity?
If you've got a car with a marketable value that you're looking to get rid of, you've got a few choices.

1. Donate it to a reliable charity that has 501(c)(3) tax-exempt status with the IRS. After it has been sold, a letter will be sent from the charity stating the amount it was sold for, maybe far less than the fair market value although it is for a good cause. Say it's sold at auction for $600. If you're in a 33-percent tax bracket, you can deduct $198.00 from your taxes. Your $1,500 car has now become worth $198.00 to you.

2. Trade your old vehicle in on a new car — ... but beware. Dealers are not generally happy to get people's worn out cars as trade-ins, although a late model luxury or foreign car might bring a respectable price. Dealers often use your trade-in to readjust the terms of your new car purchase or lease, so you have to be pretty sharp not to get "taken for a ride". If you trade in a $2,000 car, you'd be lucky to get $1000 - $1400 if that depending on condition.

3. Donate it to an organization such as Charity Cars, which uses the car as part of its stated cause. This allows you to deduct the car using Edmunds.com's True Market Value^SM. Using the 30-percent tax bracket, that means $2,000 x 30% = $600 in your pocket.

4. Sell your vehicle instead of donate for around its full market value. Usually it's harder to do, this is recommended. Internet sites such as Autotrader and eBay can make it easier, though it depends on the make and condition of car, how desireable, and how much it is actually worth

When it comes to tax deductions, there's more than just your tax bracket. You must itemize your taxes if you want to take advantage of vehicle donation. Other factors include how much you make in income, the need for deductions, and the car's value. An accountant can help you decide if vehicle donation is right for you, or ask the IRS at (800) 829-1040 for the new tax break rules to help you decide whether or not to donate your car.