New
Rules for Car Donations Starting From January 2005
IR-2004-142, Nov. 30, 2004
WASHINGTON — The Internal Revenue Service issued a consumer alert today to
help taxpayers avoid potential pitfalls when they donate their automobiles to
charities.
In addition, as taxpayers plan their charitable giving, donors should
understand the way that the American Jobs Creation Act of 2004 will alter the
rules for the contribution of used motor vehicles, boats and planes after Dec.
31, 2004.
Next year, if the claimed value of the donated motor vehicle, boat or plane
exceeds $500 and the item is sold by the charitable organization, the taxpayer
is limited to the gross proceeds from the sale.
Under the new rules, the charitable organization must provide an
acknowledgement to the donor within 30 days of the sale stating the amount of
gross proceeds. Alternatively, if the charity significantly uses or materially
improves the vehicles, the charity must certify this intended use and duration
and provide an acknowledgement to the donor within 30 days of the contribution.
If the charity significantly uses or materially improves the vehicle, generally,
the donor may deduct the vehicle’s market value.
For the remainder of 2004, however, the new rules do not apply. Under the
rules in effect for 2004, taxpayers will be able to deduct the fair market value
of the contributed property.
“Just because the rules will be tightened for vehicles donated next year
doesn’t mean anyone should give a car to charity and claim an inflated value
this year,” said IRS Commissioner Mark W. Everson.
Related Items:
-
Publication 4302, A
Charity's Guide to Car Donations
-
Publication 4303, A
Donor's Guide to Car Donations
IRS officials recommend that people who want to donate their vehicle by Dec.
31, 2004, take the following steps:
Check That the Organization is Qualified — Taxpayers
should make certain that they contribute their car to an eligible organization;
otherwise, their donation will not be tax deductible. Taxpayers can use the IRS
Web site to check that an organization is qualified by searching Publication 78.
Publication 78 is an annual, cumulative list of most organizations that are
qualified to receive deductible contributions. Publication 78 is also available
in many public libraries. In addition, taxpayers can call IRS Tax
Exempt/Government Entities Customer Service at 1-877-829-5500. Be sure to have
the organization’s correct name and its headquarters location, if possible.
Churches, synagogues, temples, mosques and governments are not required to apply
for this exemption in order to be qualified. They frequently are not listed in
Publication 78. Donations to these institutions are tax
deductible.
Itemize in Order to Benefit — Many taxpayers can’t take a
deduction for car donations because they don’t itemize deductions on their
personal tax return. For taxpayers, the decision to itemize is determined by
whether their total itemized deductions are greater than the standard deduction
(for 2004, the standard deduction will be $4,850 for single; $9,700 for married
filing jointly). Slightly more than one-third of the 130 million individual
taxpayers itemized in 2001, the last year for which complete data is
available.
Calculate the Fair Market Value — The donor must take many
factors into consideration to establish the value of the car. Many used-car
buying guides contain step-by-step instructions so that readers can make
adjustments to the value of a car for accessories, mileage and other indicators
of its general condition. Both Publication 526, Charitable Deductions,
and Publication 561, “Determining the Value of Donated Property,” provide
detailed instructions.
Deduct Only the Car’s Fair Market Value — Some car
donation program operators have mistakenly claimed that donors can deduct the
highest value listed in a used-car buyer’s guide for their make and model of
car, regardless of the donated car's condition. The IRS, however, will only
allow a deduction for the fair market value of the car. Fair market value takes
into account many factors, including the vehicle’s condition. The fair market
value of the taxpayer’s car may be substantially different than the highest
value listed in a used-car buyer’s guide for that make and model of
car.
Document the Charitable Contribution Deduction — For
vehicle donations, taxpayers must document the car donation and its fair market
value. Recordkeeping requirements are comprehensive and vary depending on the
amount of the contribution and the total amount of the charitable deduction.
IRS Publication 526 details requirements for the types of receipts taxpayers
must obtain and the forms they must file.
Contact State Charity and IRS Officials When in Doubt —
Donors with questions about whether a contribution is deductible should call the
IRS at 1-800-829-1040 or for TTY/TDD help, call 1-800-829-4059. They can also
find IRS forms and publications at IRS.gov. Donors concerned that contributions
are being solicited for fraudulent purposes should contact the appropriate state
charity official, who is often located in the state attorney general's office.
A list of state charity official offices can be found online.
Related Items:
-
IRS Publication
78
-
State
Charity Officials
-
State
Attorneys General
-
Publication 526, Charitable Deductions (PDF
177K)
-
Publication 561, Determining the Value of Donated Property ( PDF 101K)
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