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Planning
to Donate Your Vehicle? Beware of Tax Rule Changes for 2005.
Donating
your vehicle was as simple as 1-2-3. Call a local
charity to pick it up. Get a receipt. Claim it
as a deduction on your taxes. Simple.
If
you are considering the donation of your car to
charity for a deduction from your federal income
tax, there are new rules for donations made in
2005.
he
new rules add more accountability and limits to
the process of deducting vehicle donations. The
amount of record keeping and filing increases
with the value of the deduction. The rules outlined
in IRS Publication 4303 are summarized below.
All donations:
- Records must be kept describing the car
and charity.
If
the eligible deduction exceeds $250, then
- If the charity does not use the vehicle
or improve it before its sale, the deduction is
limited to the gross proceeds from its sale.
- If the charity intends to use the vehicle
or make improvements before its sale, generally
the fair market value can be deducted.
Written
acknowledgement of the above from the charity
is required in order to claim the deduction. The
acknowledgement must be obtained within 30 days
of the charity's sale of the car or within
30 days of the donation if the charity intends
to use the car or improve it.
If
the eligible deduction exceeds $500, then
- Section A of Form 8283 must also be filed.
If
the eligible deduction exceeds $5000, then
- A written appraisal is also required.
- Section B of Form 8283 must also be filed.
It
is highly recommended that you read Publication
4303 if you are considering making a deductible
vehicle donation. At the time of this writing, the IRS is in the
process of further revising the publication with
additional guidance.
Other
Tips
Confirm
that you can benefit before you donate.
The deduction can only be applied if you itemize
your deductions. If the standard deduction exceeds
your itemized deduction, you will not realize
any benefit from the deduction. There are also
limitations to deductibility that may apply to
your individual tax situation.
Choose
a qualified charity. A charity must meet
the conditions required by the IRS in order for
your donation to be deductible. To verify the
qualification of a charity, reference IRS Publication
78 for a list of most qualified charities, search
online at http://apps.irs.gov/app/pub78,
or call 877-829-5500.
Determine
the Fair Market Value of your car. Fair
Market Value (FMV) is the price one could reasonably
expect when a buyer and seller come together with
all of the facts known about the car and neither
is required to buy or sell. The FMV can be less
than the value found in a used car buying guide,
as the condition of the car can reduce the FMV.
See IRS Publication 526 and 561 for guidance and
instructions for determining FMV.
Seek
Professional Advice. While its not as
easy as it used to be, donating your vehicle is
still a perfectly legitimate and effective way
to help your favorite charity and reduce your
taxes. Understanding the rules before you donate
will help to ensure that you will be able to benefit
from your donation as well as your charity. If
deductibility of your donation is important to
you, consult with your tax advisor to review your
individual situation before donating.
Sources:
IRS
Publication 4303 (http://www.irs.gov/pub/irs-pdf/p4303.pdf)
IRS Publication 526 (http://www.irs.gov/pub/irs-pdf/p526.pdf)
IRS Publication 561 (http://www.irs.gov/pub/irs-pdf/p561.pdf)
www.irs.gov
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