You've seen the ads: "Donate your car and get a tax break." Technically, that's true.
But some people who give away an old auto might find their tax break smaller than they expected. And a few donors, thanks to the intricacies of vehicle gift guidelines, might be able to boost their deduction amounts.
Giving away a clunker to a charity was once straightforward. You could claim the old car's fair market value, that is, the amount a willing buyer would pay a willing seller for the product. Typically, you'd refer to auto valuation services, such as the Kelley Blue Book, to get an idea of the donated car's value, give it to your favorite nonprofit and then drive off with a tax break equal to that valuation amount. No more.
Because some taxpayers got greedy, claiming much more than their old autos were worth, lawmakers tightened the rules on how much you can write off for a vehicle donation. Now the precise tax break depends on the donor's claimed value of the gift and how the charity uses the vehicle.
"This puts taxpayers in the unusual situation of not knowing the size of their deduction when they make the donation," says Bob D. Scharin, senior tax analyst from the Tax & Accounting business of Thomson Reuters.