TaxesIRS Car Donation and Tax Information

A car donation to your favorite charity continues to be a great means of tax deductible support under the new tax law.

As of January, 2005, you may deduct the full dollar amount that your car, boat, truck, or other donated vehicle sells for. But, not only do you receive the tax advantage from the full dollar value of your donation…. your chosen charity receives desperately needed cash proceeds generated from the sale of your vehicle. With a car donation, you could say the sales proceeds from your vehicle count twice!

Previously, you were required to investigate various resources and report your best estimate of the fair market value of your donation. There was an inherent risk of tax fraud with this method, as the IRS often saw large discrepancies between a donor's estimate and actual sales proceeds. The new law eliminates this risk and simplifies the process for you.

You receive a donation receipt at the time your donation is made. That receipt will contain all pertinent donor information, a description of your donated vehicle, and the name and Tax ID number of the charity receiving your donation proceeds. This receipt will serve as your official tax receipt if your vehicle sells for less than $500.00. It is the same concept as the Goodwill Donation receipts with which you may be familiar, on which you the donor can assign a donation amount up to $500.

If your vehicle sells for more than $500.00, you receive a supplemental receipt that states the actual sale price. That receipt will include all information required by the IRS for your tax deduction, including your social security number.

NOTE: THE IRS IS REVISING PUBLICATION 4303, A DONOR'S GUIDE TO CAR DONATIONS

An Explanation of New Rules for Donations of Motor Vehicles, Boats, and Airplanes Follows:

If you donate a car to charity as of January 1, 2005, and you are eligible to take a tax deduction in excess of $500, your deduction is determined in one of two ways:

  1. If the car is sold without any significant intervening use or material improvement by the charity, your deduction is limited to the amount of the gross proceeds from its sale.
  2. If the charity intends to make significant intervening use of or materially improve the car, you generally can deduct its fair market value.

You must get a contemporaneous written acknowledgement from the charity and attach it to your income tax return, Form 1040. If you do not have an acknowledgement, you cannot deduct your contribution. If the claimed value of the car is more than $500, the acknowledgement must include:

You must obtain the acknowledgement no later than 30 days after the date the charity sells the car, or 30 days from the date of the contribution if the charity intends to make significant intervening use of or materially improve the car.

The IRS expects to issue additional guidance on these rules early in 2005. Please check their website at www.irs.gov or call 877-829-1040.


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