At least once a month a client or friend will mention that they are thinking of donating their car to a favorite charity. Most think they can get a tax deduction equal to the book value of the car they are donating. They are wrong.
Three years ago, the rules pertaining to donations for cars changed dramatically. Before 2005, you could donate your car and take a tax deduction for it. The amount of the deduction was equal to the fair market value of the car at the time it was donated.
In 2005, the rules changed and now when you donate your car, you still get a tax deduction, but the amount of the deduction is equal to what the charity sells the car for. That can be significantly less than the fair market value. As with all tax rules, there are exceptions. One is that if the charity keeps your car and uses it, you are still able to deduct the car's fair market value. Also, you can deduct the car's fair market value instead of its ultimate sales price if the value is $500 or less. Before you donate your car, you might want to ask the organization if they will be keeping or selling your car. It could make a big difference to you at tax time.
The author is solely responsible for the content.