The Rules For Donating Your Vehicle Have Changed
By Teresa Ambord
For years you’ve been hearing about the tax benefits of donating your car to charity. Maybe you’ve enjoyed those benefits. Certainly in recent years hundreds of non-profit organizations have popped up their heads, asking that you consider donating your unwanted vehicle to them. But as of 2005, the rules governing car donations have changed drastically and you need to know how.
Just ask the IRS…car donations have always been a headache. When it comes to estimating the value of a car for donation, taxpayers often pump up the worth of their vehicles, well beyond the bounds of reasonable. The allowable deduction is limited to the fair market value of the vehicle, but taxpayers sometimes exaggerate the good condition of the car to raise the value. That’s a problem. And that’s why the IRS has stepped in to change the rules beginning January 2005.
Under the new rules, the fair market value is irrelevant. If you donate a car for which you are claiming a value in excess of $500 your actual deduction will depend on how the charity uses your donation. If the charity sells the car without using it significantly or without making substantial improvement, your contribution will be limited to the amount of gross proceeds from the sale.
Also the charity to which you donate must provide you with timely documentation of the value if it is more than $500, or you will not be able to claim the contribution. The documentation must include:
- your name and taxpayer ID number
- the vehicle ID number
- a statement that the car was sold in an arm’s length transaction between unrelated parties
- and the gross proceeds of the sale, or
- a statement of how the charity intends to use or improve the vehicle.
Charities must notify donors within 30 days of the gross proceeds received if they sell your car, or if they intend to use or substantially improve the car. In general, if the organization intends to either use, or improve the car you donate, you will be permitted to deduct its full fair market value.
As always, when you donate, check out the charity first. You should be able to call and ask for details of the car donation program. If you have any doubt, check with www.Give.org to make sure it is a reputable organization.
