Instant Auction

If the charity immediately sells your vehicle, you are only allowed to deduct the sales price. For example, if you donate a car with a market value of $4,000 but it sells for $3,000 at auction, you can deduct only $3,000.

Exception

If your car sells for less than $500 and for less than the market price, you can claim the lesser of $500 or the market value of your car if you get documentation from the charity attesting that the fair market value of the car was at least $500. If you cannot prove the fair market value was at least $500, you can deduct only the sales price of the car. For example, if your $1,000 car sells for $300 at auction, you can deduct $500 with proper documentation because $500 is the lesser of the fair market value ($1,000) and $500. If you did not have documentation, you would be limited to deducting $300.

Significant Improvements

If the charity makes significant improvements to your vehicle, you may deduct the fair market value. According to the IRS, "significant improvements" do not include painting, fixing dents or scratches, cleaning or installing an anti-theft device.

Charitable Use

If your charity gets significant use out of your vehicle for charity work, such as driving volunteers to and from work sites, you can claim the full market value of your car.

Reduced Price Sales

If the charity's mission involves giving cars to needy families or selling them to needy people at reduced prices, you can deduct the market value of your car rather than the sales price. However, you must get documentation that the car was sold to a needy family. For example, if you donate your $2,000 car and the charity sells it for $400 to a family in need, you can deduct the full $2,000 as long as the charity vouches for the purpose of the reduced price.

Warnings

You must include documentation with your tax return from the charity. If your donation is found to be inflated, the IRS can disallow the deduction completely even if you were otherwise entitled to a smaller deduction.

Source:

IRS: A Donor's Guide to Vehicle Donations

Bankrate: Donating a Vehicle to Charity

Edmunds: Does Charity Car Donation Still Make Sense Under Tougher IRS Rules?