The 3 Most Unexpected Outcomes of Donating Your Car

Donating a car to charity is a generous thing to do, and it can also be a win-win: Your favorite nonprofit gets money, and you can get a tax break for your charitable donation (and save yourself money on insurance costs). But don't assume that a car donation is automatically going to mean big bucks for you at tax time. Due to IRS rules, there are a few complexities when donating your car.

Here are a few unexpected outcomes to watch out for when donating a car to charity.

1. Your car might be worth less than you think

When you donate your car to charity, the typical minimum tax deduction you can claim is $500. If your car is old, in bad shape, or needing to be scrapped, that $500 might feel totally fair to you. But if your car is in better condition, the amount of your tax deduction will depend on:

• The sale price of the vehicle (assuming that the nonprofit sells your car to get cash), or:
• The "fair market value" of the vehicle (if the nonprofit keeps the car to use in support of its mission).

Don't assume that your used car is going to sell for big money. The used car market goes through ups and downs. Sometimes, used cars are in demand and fetching high prices, and other times there are plenty of used cars looking for new homes -- causing prices to go down. If you want to see how much your car is worth before you decide to donate, use tools like Kelley Blue Book to find the estimated value of your car based on current market trends in your area.

2. You might not qualify for a big tax deduction

If you want to get a break on your taxes for donating your car, IRS rules require you to donate the vehicle to a qualified tax-exempt nonprofit organization, called a 501(c)(3) charity. Before you donate, make sure that your charity of choice is up to date on its 501(c)(3) status. Even if you are connected to a local charity or community service group that you love, if it hasn't filed the right paperwork to become an officially tax-exempt 501(c)(3), you won't get a tax break for that donation.

Also, the exact amount of the tax deduction that you qualify for will depend on how the charity uses your donated vehicle. It can either sell the car for cash, or keep it for certain purposes, such as using the vehicle to deliver meals, or donating the vehicle to people in need. You won't know the actual amount of tax deduction that you can claim until the charity gives you a tax receipt, known as Form 1098-C. Depending on how the charity uses your vehicle, and how much your car is worth, your deduction amount on that Form 1098-C might be lower than you expected.

3. You might not get money back at tax time

In recent years, IRS rule changes have made it less possible for most taxpayers to be able to claim deductions on charitable contributions. That's because you have to itemize your deductions in order to get tax deductions for charitable contributions -- and most taxpayers don't do this. Instead, people tend to take the standard deduction.

According to IRS data, as of 2020, 87.3% of tax returns took the standard deduction. Taking the standard deduction might often be a better deal for your overall tax situation, if it lets you reduce your taxable income by more money than if you itemize. But taking the standard deduction won't let you get an extra tax break for donating your car.

Bottom line: Donating your car to charity is a wonderful act of generosity, but don't expect it to make a big difference to your tax refund. If you're thinking about donating your car because it's too expensive to own and you're tired of paying for auto insurance, you might want to sell it or trade in your car instead. Check out the estimated value of your car before you decide to donate it, and make sure you understand how much of a tax deduction (if any) you're likely to receive.