Important changes
to car donation tax laws
New
2005 car donation
tax laws:
On
October 22, 2004 President Bush signed the JOBS bill
(HR 4520) into law. Section 731 of this law places
new restrictions on car donations to charity. If you
are planning to donate a car, it is important to
note these changes to the tax law that went into
effect on January 1 st, 2005 to make sure that you
will receive the tax benefits that you expect from
your car donation.
TITLE VIII:
Revenue Provisions - (Sec. 884)
Revises rules for claiming tax deductions for
charitable donations of motor vehicles, boats, and
airplanes valued over $500. Limits the allowable
amount of such deductions to the gross proceeds
received by the donee charitable organization from
the sale of the donated vehicle. Requires the donee
organization to provide donors with a written
acknowledgment of the contribution within 30 days of
the donation. Imposes a penalty upon donee
organizations for providing false or fraudulent
acknowledgments.
News on tougher
car donation tax laws for 2005
To help reduce overvalued auto donations (and bring
more tax dollars to federal coffers), the
IRS has issued a
new guide for auto donations. In addition,
legislation signed into law by President Bush on
Oct. 22 makes substantial changes to used-car
charitable deductions next year.
Beginning
Jan. 1, 2005, when a taxpayer donates a vehicle for
which the claimed value is $500 or more, the precise
deduction he can claim will depend on how the
charity plans to use the vehicle. If the auto is
sold by the nonprofit, then the taxpayer will be
able to deduct only the amount of gross proceeds the
organization got from the sale. And the donor will
have to depend on the charity to let him know the
donation amount by the individual tax-filing
deadline.
If, however, the group plans to use the car for what
the law deems as "significant" tax-approved
charitable work, the donor would be able to claim
the fair market value of the donated vehicle. The
new law also provides penalties for fraudulent
acknowledgments provided to taxpayers.
Related Items:
-
-
Publication 526, Charitable Deductions (
PDF
177K)
-
Publication 561, Determining the Value of
Donated Property (
PDF 101K)
Question asked the most
:
I donated a
used car to a qualified charity. I itemize my
deductions, and I would like to take a charitable
contribution for the donation. Do I need to attach
any special forms to my return? What records do I
need to keep?
If you claim a
deduction on your return of over $500 for all
contributed property, you must attach a
Form 8283 (PDF), Noncash Charitable
Contributions, to your return. If you claim a
total deduction of $5,000 or less for all
contributed property, you need only complete
Section A of Form 8283. If you claim a
deduction of more than $5,000 for an item or a
group of similar items, you generally need to
complete Section B of Form 8283 which requires, in
most cases, a qualified appraisal by a
qualified appraiser.
You will need to
obtain and keep evidence of your car donation and
be able to substantiate the fair market value of
the car. If you are claiming a deduction of $250
or more for the car donation, you will also need a
contemporaneous written acknowledgement from the
charity that includes a description of the car and
a statement of whether the charity provided any
goods or services in return for the car and, if
so, a description and estimate of the fair market
value of the goods or services.
For more
information on these requirements, refer to
Publication 526, Charitable Contributions,
Publication 561, Determining the Value of
Donated Property; Form 8283, Noncash
Charitable Contributions; and its instructions,
and
Tax Topic 506, Contributions.
References:
