If you donate a used vehicle to charity, you are allowed to take a tax deduction for your generosity, but only if you itemize deductions on your tax return. Here’s the current rule governing donated vehicles.
Tax law: The charity must inform the taxpayer of the price the donated vehicle sold for at auction. This is the amount the taxpayer can claim as a tax deduction. If the charity keeps the vehicle for its use, it must give the taxpayer an estimate of the value. This requirement applies when the claimed value of the vehicle exceeds $500.
Application: If a taxpayer gives a car with a blue book value of $3,000 to a charity, that value cannot be used – even as a starting point – for determining the value of the vehicle and the amount of the deduction. If the charity sells the car for $575, that’s the amount that can be taken as an itemized deduction. However, if the charity uses the vehicle for its own use or is in the business of training others then the full market value can be used as a deduction.
Note: The vehicle deduction rules apply to other donated vehicles, too, such as boats and airplanes.
Since the value of the deduction for you can vary widely, it is important to donate your vehicle to the right charitable organization to receive the best valuation at the time of donation. So prior to making this valuable donation, try to identify how the charitable group will be using the vehicle.