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Don't dump that old car, donate it
When your old jalopy is down to its last
sputter, don't automatically trade it in. That beater may be
worth more to you as a tax deduction.
There are, however, some tax rules to
keep in mind.
First, the timing of your auto donation
is critical. All charitable gifts must be made in the tax year
for which you are filing the return. So to be claimed on your
2003 tax return (due by April 15), you must have given your
car to a charity by last Dec. 31. Any donation you make now
will still help your favorite nonprofit, but you can't take
tax advantage of it until next year.
Next, to write off your auto gift, you
must itemize instead of claiming the standard deduction. That
means you have to keep track of what you give and file the
long Form 1040 and Schedule A. If your old car is the only
deduction you can claim on Schedule A, giving it to a charity
may not be worth it from a tax standpoint.
To determine whether to
itemize or claim the standard deduction, find out your
standard deduction amount. It depends on your
filing status:
- $4,750 for single or married
taxpayers filing separately,
- $7,000 for heads of households, and
- $9,500 for married couples who file
joint returns.
If your itemized expenses are close to
your standard amount, adding the value of a donated car could
be just what you need to make itemizing the right tax choice
this year.
Continued below
Also keep in mind that as a deduction,
the value of your car does not directly cut your tax bill.
Deductions are used to reduce your taxable income, which
usually does mean you'll owe less taxes. But a deduction's
actual worth depends on your
tax bracket. That means a donation of a $300 auto
translates to a tax cut of only $75 for a filer in the
25-percent tax range.
So if you would rather have the cash
instead of a comparatively small tax break, sell your old
auto. If, on the other hand, you're feeling generous -- or
don't want to spend what it would take to get the clunker in
sellable shape -- giving it to a charity might be the better
route
Check out your
charity
Once you've decided to donate your vehicle, the biggest choice
is which philanthropic group gets it. More than 4,000
charities accept gifts of vehicles. The important thing is to
make sure that the one you select is a reputable and
tax-qualified organization. Unfortunately, some con artists
take advantage of people's good intentions and accept cars
that never go to philanthropic causes.
Other groups may well do valuable
community work but are not approved charitable organizations
under IRS rules. Ask for copies of the group's federal
tax-exempt status documents. You also can check out the
IRS Web site's directory to see if the charity is on the
approved list or peruse
GuideStar's registry, which provides information on more
than 850,000 U.S. nonprofit organizations. Or call the IRS at
1-800-829-1040 and ask about the group's tax status.
Don't worry if your car's engine conks
out completely before you pull into the charity's parking lot.
In most cases, the auto doesn't even have to run. Many groups
offer free towing. In fact, it doesn't even have to be a car.
Vans, trucks, recreational vehicles, boats and heavy equipment
are accepted by many groups.
You must have a clear title to the
vehicle, and it must be lien-free. Groups won't accept cars
that are still being paid for or that are leased.
Proving your
generosity
After handing over the vehicle, get a receipt. For
contributions of $250 or more, you must get a written
acknowledgment of your gift from the organization before you
can claim the deduction. The group getting the car, however,
won't include on the receipt the value of your gift.
When it comes to deciding just how much
your car was worth, the IRS relies on you to accurately claim
the fair market value -- what a willing buyer would pay a
willing seller for the product. To get an idea of this, check
out auto valuation services such as the
National Automobile Dealers Association, the
Kelley Blue Book or
Edmunds. You may be surprised by how much your donation is
worth.
But don't get greedy. Government
inspectors say they've found wide discrepancies between the
value that some auto donors claim on their tax returns and the
actual worth of the cars they give. In fact, a November 2003
General Accounting Office report notes that excessive tax
valuations of donated vehicles cost the federal Treasury $654
million in tax revenue in 2000.
So be warned. Claiming a $5,000 tax
break for a 1992 Ford Escort probably will raise IRS eyebrows.
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