Qualifying Car Donations

• Before you even start calculating your donation deduction for the year, you need to first verify that you are eligible to claim it. Initially, your eligibility depends on the type of organization you donate the car to. The IRS only allows you to claim a deduction for donations to a nonprofit organization that either meets the requirement of Section 501(c)(3) (commonly called "501(c)(3) organizations") or is a religious organization such as a church or synagogue. In most cases, the charity should be able to provide you this information. If not, you can reference IRS Publication 78 for a complete list of qualified charities.
  
  

Calculating Deductions

• In most cases where your car is worth more than $500 there is no need for you to calculate a precise deduction. This is because the IRS limits the amount you can claim as a deduction to the gross proceeds the organization obtains when it sells the car. The charity will notify you of the price by sending you all relevant information on a Form 1098-C. You need to retain this document for when you prepare your tax return. However, if the charity provides your car to a needy individual, retains it for internal use or makes significant repairs or improvements to it, you should determine the car's fair market value. This is because the IRS will allow you to claim the higher fair market value as your deduction in any of these three cases.
  
  

Written Acknowledgments

• In addition to Form 1098-C, charities must provide you with a written acknowledgment of the car donation, regardless of price it sells the car for. The level of information required in this document increases as your deduction exceeds certain thresholds. But, generally, it must minimally include your name, the date you make the donation, your Social Security number plus details of the types of goods and services you receive from the charity in exchange for the car, if any.
  
  

Illinois Income Tax

• If you prepare an Illinois state income tax return this year, unfortunately, you cannot claim any of your federal itemized deductions on the state return, including the deduction for your car donation. This is because Illinois does not allow state taxpayers to claim any deductions. The only reductions to your state taxable income are the exemptions you claim for yourself and your dependents.