It seems like an easy thing to do - donate a car to a charity you support, and get a tax break in the deal. Until 2005, it actually was almost that simple. All you had to do was determine the fair market value of your vehicle, and pick a charity that accepted cars. Today, the rules have changed a bit, largely in response to a report by a Government Accounting Office that totalled lost tax revenue from over-valued vehicles at more than $650 million in the year 2000.
So, should you still donate your car to charity? Absolutely. But there are caps on what you can claim:
$500 Limits
Generally speaking, there is a $500 value threshold for gifted vehicles. This doesn't mean that your donated car can't be worth more, but it does mean that if it is, you'll have to do some extra documentation.(This threshold applies to planes and boats as well as cars.)
Valuation Ceilings
If your vehicle has a fair market value of more than $500 (as determined by sources like the Kelley Blue Book), and the charity that accepted it then turns around and sells it, you cannot claim more than their selling price. (Example - you donate a hatchback worth $1,000 and the charity sells it for $750. You can't claim more than $750 as a deduction.) In addition, the charity has to provide written documentation of the donated vehicle's IRS-allowable deduction within 30 days of accepting the car, or within 30 days of selling it if they do so. You must include this documentation with your tax return when you file.
Below-Market Resale
But what if the charity you donated your car to sells it far below market? Or what if they give it away? You may still be able to claim the full $500 even if your car was sold for only $250. Again, the charity in question must give you documentation, this time that the sale or gift was to a needy person.
Intervening Use
Aside from the rules above, there is an "intervening use" clause in the new regulations. Basically, if you donate your car to a charity, which then uses it to make deliveries or pickups (or for other work-related reasons) before selling it for less than your estimated $1,000, you may be able to still deduct the full $1,000 if they provide proof of use as well as proof of sale.
In addition to the limits on how much you can deduct, and what documentation you have to have, deductions for donated vehicles must still follow all the rules for any other charity deductions you may have. The three most important rules are:
Donation must be within the tax year.
This means that your car must be donated by December 31, 2007 to be included as a deduction on your 2007 taxes.
Deductions must be itemized.
If your car is the only deduction you can claim, you may want to consider selling it outright, as you can only get a tax break for it if your itemized deductions on a 1040-A exceed the standard deduction that would normally apply to you.
Documentation must be submitted with your return.
While it used to be standard for you (the donor) to retain the receipt from your charity in case of a question later, it is now required that such documentation be included with your w-2's when you submit your return. (Make sure you keep a copy.)
After all this, should you still donate a car to charity? Yes. In most cases it's beneficial both to you and the accepting charity - and there are around 4,000 charities across the country that take donated vehicles.
One final tip though? Always consult your tax advisor.
Lindsay has been providing auto reviews and car buying guide for carseek.com for over 2 years. Her extensive experience in the auto industry provides a wealth of information for carseek.com readers.
Article Source: https://EzineArticles.com/expert/Lindsay_Kaplan/46420
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