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It’s easy to donate a car to charity if all you want to do is get rid of it. Simply call a charity that accepts old vehicles, and it will tow your heap away.
If you want to maximize the benefits for both the charity and yourself, however, it’s more complicated. Until 2005, it was easy for taxpayers to deduct the entire “fair market value” of a donated vehicle from their taxable income, reducing the taxes they’d have to pay to the Internal Revenue Service. (The IRS defines fair market value as “the price a willing buyer would pay and a willing seller would accept for the vehicle, when neither party is compelled to buy or sell and both parties have reasonable knowledge of the relevant facts.”)
Allowing taxpayers to deduct the full fair market value for all those donated vehicles cost the IRS a lot of dollars, however, so the agency tightened the rules. Today, you can only deduct a vehicle’s fair market value under very specific conditions. We’re going to walk you through those conditions, with the usual proviso that you should discuss these issues with your tax preparer before you act. Also note that if your state or locality also levies income taxes, other rules may also apply.
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