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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.


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)

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