March 13, 2025
If you are thinking about donating your old car to a charity instead of trading it in for a new one, you may wonder if it is worth it for the tax deduction. The answer depends on several factors, including IRS rules on vehicle donations.
The IRS closely monitors car donations because, in the past, some donors claimed inflated deductions. To prevent this, Congress introduced strict documentation rules, which charities and donors must follow. Some charities might promise larger tax deductions, but if the IRS finds the claim is too high, they won’t allow the deduction—even if you were misled.
How Your Tax Deduction is Determined:
The IRS rules depend on what the charity does with the vehicle:
1. If the charity keeps and uses the car
Your deduction is based on its fair market value (the actual worth of the car). The charity must provide documentation showing how they plan to use or improve the vehicle and how long they will keep it.
2. If the charity sells the car
Your deduction is only the amount the charity receives from the sale. In most cases, this means a lower deduction, often at the car’s wholesale price or less, depending on its condition.
Since many charities sell donated cars instead of using them, most donors end up with a deduction based on the selling price, not the car’s full value. Either case, the organization will issue a Form 1098-C within 30 days of the sale or donation, whichever is earlier. Please use the amount on the 1098-C for the tax deduction.
If you have any questions about how this might apply to your situation, please feel free to contact us.
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