Donating Your Car to Charity to Receive a Charitable Deduction

It has become very popular to give a used car to charity instead of trading the car in order to receive a charitable deduction.  The charities advertise that the benefit of getting the charitable deduction is greater than the amount you would get at trade-in.  The IRS has just come out with guidance as to how they will value these cars.  In general, the IRS recognizes that the fair market value is the price at which a property would change hands between a willing buyer and a willing seller, neither being under the compulsion to buy or sell.  There is no single correct way to determine fair market value of a car.  Any reasonable method may be used. 

One method of determining fair market value of a single donated car is by reference to an established used car pricing guide (the Kelly Blue Book is an online resource to determine pricing – www.kbb.com).  However, a used car pricing guide establishes fair market value for IRS purposes only if the guide lists the sales price for a car that is the same make, model, year and sold in the same area and condition as the donated car.  For example, the established used car pricing guide lists $3,000 as the current sale price of a car that is the same make, model and year as the taxpayer's car and is sold in the same area and in the same condition.  Therefore, the fair market value of the taxpayer's car and the amount treated as a charitable deduction is $3,000.  The taxpayer can also prove determine the value of the car by any other reasonable method.

If the established used car pricing guide does not list a sales price of the car for the same make, model and year as your car and sold in the same area and in the same condition, then it does not provide a value for the car.  You must establish the fair market value of the car using some other method that is reasonable under the circumstances, or contact a dealership to obtain a price.

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