| Tax Tip 2005-59,
March 24, 2005
The IRS reminds
taxpayers that the rules for taking a
tax deduction for donating cars to
charities have changed for 2005. The
American Jobs Creation Act of 2004 has
altered the rules for the contribution
of used motor vehicles, boats and planes
after Dec. 31,
2004. Starting then, 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.
In 2004, however,
the new rules did not apply. Under the
rules in effect for 2004, taxpayers are
able to deduct the fair market value of
the contributed property.
People who want to
take a deduction for the donation of
their vehicle on their 2004 tax return
should take the following steps:
Check that
the Organization is Qualified.
Taxpayers must make certain that they
contribute their car to an eligible
organization; otherwise, their donation
will not be tax deductible. Taxpayers
can search Publication 78 online to
check that an organization is qualified.
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.
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 is $4,850 for single
filers and $9,700 for married filing
jointly). Just under one-third of the
nearly 129 million individual taxpayers
itemized in 2000, the last year for
which complete data is available.
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. Publication 526, Charitable
Deductions, and Publication 561,
Determining the Value of Donated
Property, provide detailed instructions.
Deduct
Only the Car’s Fair Market Value.
Some car donation program operators have
mistakenly claimed that donors can take
the full value of their car as listed in
a used-car buyer’s guide for a
deduction. The IRS, however, only allows
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 full
used-car buyer’s guide.
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. Publication 526 details
requirements for the types of receipts
taxpayers must obtain and the forms they
must file.
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. 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 at the National Association of
State Charity Officials, and a list of
state attorneys general can be found at
the National Association of Attorneys
General.
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