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Tighter
rules for donating vehicles loom
By
Susan Tompor, Free Press Columnist
December
15, 2004
The
quick-and-easy tax break for car donations will soon
be roadkill.
Beginning
Jan. 1, it's going to be far less lucrative for taxpayers
to donate their old cars, trucks and boats to a qualified
charity in order to take a tax deduction. So you might
want to be even more charitable within, say, the next
16 days.
"If
I was thinking of donating a car in the immediate future,
I'd try to do it this year. And I wouldn't get too greedy,"
said William Massey, senior tax analyst at RIA, a New
York-based provider of tax information.
Keep
in mind the word "greedy." Internal Revenue
Service Commissioner Mark Everson has warned taxpayers
not to claim an inflated value this year just because
the rules will be tougher next year.
I
first warned readers last February to expect a deadly
curve ahead for car donations. And this fall, Congress
changed the law, as part of the Jobs Creation Act of
2004, to make it far tougher to get a fat deduction
in 2005 and after.
Many
charities just weren't getting anything close to what
people were claiming for tax deductions.
The
General Accounting Office, which released a report last
year, found shocking numbers when it examined a sample
of 54 vehicle donations.
The
former owner of a 1991 Ford Crown Victoria claimed a
value of $3,100 on a tax return. The same Crown Vic
later sold for $300. The charity ended up with even
less money after advertising and other costs.
The
more-generous car donation rules apply now through Dec.
31. So if you itemize on your taxes, you legally can
deduct the "fair market value" of a car that
you donate in 2004. This year, it won't matter how much
money the charity actually gets. Next year, you won't
be so lucky.
Still,
we're talking about a reasonable price here, given a
car's quirks.
So
if your 1997 Saturn SW2 Wagon needs a new transmission,
do not try to take a $4,000 tax write-off. Let's get
real. If you could have gotten $4,000 for that junker,
you would have sold it.
To
find a fair price, go to spots like the Web site for
the Kelley Blue Book -- www.kbb.com -- and look for
the private party value. The Web site also will help
you plug in various extras, like power seats or a moonroof.
And
the tax experts say you want to back up your deduction
-- especially now.
Print
out any online reports. Get a letter from the charity
or its agent to confirm that donation. If the value
is more than $500, you'll need to file federal tax Form
8283. Take some pictures of that car before you donate
it. And Massey said hold onto maintenance records in
your tax file.
You
must get an appraisal this year if you value your car
or truck donation at more than $5,000.
Yet
paying an outsider for an appraisal could be a good
idea in other cases, too, say if you're claiming a $4,000
deduction. An appraisal would give you more clout with
the IRS if you faced an audit.
While
you're at it, check out the charity, too. The IRS says
you can call 877-829-5500 to check out an organization.
Next
year, there's far less wiggle room in what you'd be
able to deduct for a car's value. The reporting of such
donations will get tougher next year, too.
Ken
Hess, who handles car donations for the Salvation Army
and the Disabled American Veterans in metro Detroit,
said next year charities will be required to take the
Social Security numbers of those who donate cars.
And
if you donate a car on Jan. 1 and after, you're going
to be disappointed if you're hoping to claim a value
of more than $500.
Beginning
next year, the charity will have up to 30 days after
it sells the car to tell you what the charity got for
that car. The IRS said if the taxpayer claims a value
that exceeds $500 and the vehicle is sold by the charity,
the taxpayer could only deduct the gross proceeds from
the sale.
And
guess what? The charity is not going to tell you that
old Saturn sold for anywhere near $3,000.
Who
knows what they'll get? But it might be $1,000 or less.
Brian
Krupa, car donation manager for Military Order of the
Purple Heart in Southfield, said the average car donated
to his veterans-oriented charity ends up selling for
$500 to $600.
Remember,
donated cars are often sold at auction where they fetch
less than at a car lot.
So
if your car sells at auction for $600, you'd be able
to deduct only $600 -- even if the Kelley Blue Book
says that make and model could be worth $3,000.
Or
here's another option: If the charity uses the car for
a significant time, say to deliver meals, then the donor
would be entitled to claim the fair market value next
year and afterward. You'd need proof that the car was
being used for charitable work.
"Some
people are suggesting that under this law, you'll be
better off selling the vehicle yourself," said
Mark Luscombe, principal analyst for tax publisher CCH
Inc. in Riverwoods, Ill.
You
might be. Of course, if you're really charitable, you
could sell the car and give that money to charity. Just
back it up with the right paperwork.
Contact
SUSAN TOMPOR at 313-222-8876 or tompor@freepress.com.
Copyright
© 2004 Detroit Free Press Inc
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