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Car Donation
Car donation
Car donation refers to the practice of giving away no-longer-wanted
automobiles to charity organizations. In the United States, charitable donations
provide a tax benefit; as such, this type of giving has become very popular. For
values less than $5000, the value of the tax deduction comes from the donor's
own estimate of the car's value, even if the charity receives much less money
from actually selling the car (usually at auction). Some critics have claimed
that this is essentially a tax shelter. However, non-profit organizations in the
US have come to rely increasingly upon the revenue from car donations. This type
of donation has become increasingly widespread in the U.S.; in 2000, 733,000
taxpayers reduced their taxes by $654 million.
Many charities run donation programs. Some have their own car lots which sell
the donated cars but many have their donations processed through auto auction
companies. At least one charity exists which collects and sells donated cars and
distributes the money to whichever charity the donor indicates. This allows car
donation income to flow to charities which do not run their own programs.
IRS Officials Urge Care for Those
Making a Car Donation; New Law Changes Rules at End of the Year
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.
IRS officials recommend that people who
want to donate their vehicle by Dec. 31, 2004, take the following steps:
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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.
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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.
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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.
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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.
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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.
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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.
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Car Donation
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