Did you know that you can donate your car to charity and claim a tax deduction on the donation? You need to know what the charity you have donated your car to intends to do with your car. If they auction it to raise funds you can only claim deduction up to the value at the auction, limited to a maximum of $ 500.

You need to verify the eligibility of the organization you are donating the car to. This is because if the charity concerned is not eligible, your claim for a tax deduction may become invalid. Publication 78, which is a government publication, lists all charities and their eligibility. Do not depend on information given to you by the charity. Go ahead and verify this eligibility independently. Publication 78 is also available online and you could check the status there.

You have to assess the value of your car correctly, as this information is crosschecked by the income tax authorities. A car buying guide would give you a good indication of a fair market value of your car and this is the amount you can claim as a deduction. You would also need to file with the IRS a Charitable Contribution Deduction. Ensure that all forms and receipts are scrupulously maintained.

Schedule A of your 1040 tax form must be utilized for the deduction that needs to be properly itemized. This is where you would have to give all the information regarding the car you are donating. Deductions can never be more than half of the adjusted gross income that you are going to put in your tax form.

As mentioned before, the charity you are donating to must have the eligibility and must be in the list of 501c3 organizations. You can always call on the IRS Division that deals with Tax Exempt and Government Entities to get confirmation of such listing. You can also ask the charity to give you a copy of their tax exempt status and their latest annual returns.

You must also ensure that the car you are donating was not owned by you for the purpose of profit. This bars car dealerships from donating cars. The charity you donate the car to has to give you a statement that indicates the use they are going to make of the car, even if they are intending to donate it to another person for his use. They can even sell the car to that individual but have to ensure that the sale price is below the market value. If they intend to improve the car they would have to give a detailed list of the improvements they intend to make, and they are barred from selling it until such improvements are made.

All such statements by the charity have to include your name, taxpayer ID and the vehicle identification number. They can use Form 1098-C instead of giving a statement. The charity also has to provide you with an acknowledgment of your donation in the requisite form (Form 8283) and must do this within 30 days of receiving the donation.