Handing over the keys saves you the hassles of trying to sell it. It also could result in a handsome charitable-donation deduction on your federal income-tax return. But be sure you understand the often-confusing tax-law basics.
First, you can't deduct any charitable donations unless you itemize your deductions. Second, be aware of important tax-law changes that became effective in 2005.
The general rules work like this: Suppose you donate a vehicle you think is worth, say, $3,000. But the charity, or some middleman, sells it for only $1,000. In that case, you typically could deduct $1,000—even though your research indicated the car really was worth much more.
The charity is supposed to report that sale-price information to you.
But there are some exceptions. For example, you generally can deduct the car's fair-market value, not the selling price, if you claim a deduction of $500 or less.
Do a little research, such as asking charities whether they plan to sell the car or use it for some other purpose.
You generally may deduct the fair-market value if the organization makes what the Internal Revenue Service calls a "significant intervening use" of the vehicle, such as using it to deliver meals to needy people. See IRS Publication 4303 and others (atwww.irs.gov) for details.
The IRS also says donors may take market value when they get a written acknowledgment certifying that the charity plans to give away, or sell, the vehicle to "a needy individual at a price significantly below fair market value" and where the gift or sale "is in direct furtherance of the charity's charitable purpose of relieving the poor and distressed or the underprivileged who are in need of a means of transportation."
Be aware of all record-keeping and other paperwork rules. Also remember that there are certain limits on charitable-donation deductions. For example, you can't deduct more than half of your adjusted gross income.
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