Donate Car
On June 3, 2005, the IRS released guidance on charitable deductions if you donate a car. The American Jobs Creation Act (AJCA) radically changed the amount of the deduction taxpayers can claim.
Donate Car
If you donate a car to charity, you were traditionally allowed to deduct the fair market value. The new law changes this valuation to the actual sales price of the car when sold by the charity. You are also required to get written and timely acknowledgment from the charity in order to claim the deduction for the car.
The AJCA does provide some limited exceptions under which a donor may claim a fair market value deduction. If the charity makes a significant intervening use of a car --such as regular use to deliver meals on wheels -- the donor may deduct the full fair market value. For example, driving a car a total of 10,000 miles over a one-year period to deliver meals is a significant intervening use.
The AJCA also allows a donor to claim a fair market value deduction if the charity makes a material improvement to the donated car. Under the guidance, a material improvement means major repairs that significantly increase the value of a car, and not mere painting or cleaning.
Interestingly, the IRS has also added an exemption not included in the AJCA. On its own, the IRS has determined that taxpayers can claim a deduction for the fair market value of a donated car if the charity gives or sells the vehicle at a significantly below-market price to a needy individual, as long as the transfer furthers the charitable purpose of helping a poor person in need of a means of transportation.
If you intend to assert one of these exemptions, how do you determine the fair market value? Generally, car pricing guidelines and publications differentiate between trade-in, private-party, and dealer retail prices. The IRS considers the fair market value for car donation purposes to be no higher than the private-party price.
The new provisions of the Americans Job Creation Act certainly make it less attractive to donate a car to charity. Using the exemptions, however, you can still create a sizeable deduction while helping others who are less fortunate.