Donating a used car to charity

How much can you deduct from your taxes anyway?

Question: Maybe you've got a junker taking up space in your driveway, and fixing it would cost more than the car is worth. Some charities accept used cars as donations, letting you deduct the value of the car from your taxes. Many even offer to come tow the car away.

That said, how much can you deduct from your taxes? Can you take the full Kelley Blue Book value even if the car is, say, rusted out and doesn't run?

Answer: No, you can't deduct the full Blue Book value, says Mark Luscombe, an analyst at the tax information firm CCH.

"There have actually been a lot of developments on this over the last five years and some statutory law changes that went into effect a couple years ago" in 2005, he says. "Basically, the old rule was: You could deduct the fair-market value of your particular car, and Blue Book could be a guide."

But, "the IRS and Congress were concerned that a lot of people were taking Blue Book for junkers and getting away with more than they should," he adds. "So, now the rule is: If we're taking more than $500, you have to get from the charity a statement for how much the charity sold the car for." And, that's your deduction.

But, what if the charity doesn't sell the car and instead uses it -- or, maybe part of the charity is fixing up cars and giving them to needy people. "The statute does specifically say in those particular cases you can still use the old rule -- the fair market value of your vehicle," Luscombe says.

How about trying to sell the junker yourself?

"You might have to deliver it to the auction site, which may not be in your hometown. And these charities -- some of them anyway -- represent that they'll tow it away from your backyard or whatever," he says.

Besides, if you sell the car yourself you'll probably get far less than Blue Book value, he adds. After all, that was the reason for the IRS rule change in the first place.

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Stephanie Hoo is asap's business writer.

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