Use Form 8283 When Filing a Claim

When claiming a car donation tax deduction, you must use Form 8283, "Noncash Charitable Contributions," if it is valued at more than $500.
Fill out Section A of the form if your total deduction for all noncash charitable donations, including your used car, is $5,000 or less.
If it is more than $5,000, you likely will need to complete Section B. In some cases, donors also may need to file proof of a certified appraisal. For expensive car donations, it may be a good idea to seek the help of an accountant.

Review the new IRS publication specifically addressing questions on car donation.

The IRS has issued new guidance for donors wishing to donate their car to charity. It is Publication 4303, "A Donor's Guide to Car Donation". It can be found on the IRS website at http://www.irs.gov/pub/irs-pdf/p4303.pdf. A good car donation charity will provide a direct link from their site to this IRS publication.

Be sure to get a tax receipt for your automobile donation.

If you donate a car to a charitable organization that plans to keep the car, and you wish to claim a tax deduction for your gift, you must determine its fair market value. The fair market value of your vehicle cannot be determined by a charity, since the IRS considers that to be a "conflict of interest." A charity's tax receipt for car donations is, however, proof that you made the donation. If the vehicle has a value of $5,000 or more, then a certified vehicle appraiser must determine the vehicle's value.

Keep a record of your car donation.

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 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. If so, you will also need a description and estimate of the fair market value of those goods or services.

Plan to Document Your Car Donation

Car donation programs have grown so rapidly that the IRS and Congress decided to bring more oversight to the system.
Officials were concerned about reports of abuse in charitable giving.
Among the concerns: People seeking to dispose of unwanted cars were inflating the prices beyond their worth at tax time.
In 2005 the IRS issued new and detailed rules to curb problems.
Now car donation IRS rules require both the donor and charitable organization to keep detailed information on vehicle donations.
If donors want to get their car donation tax deduction, they need to follow car donation tax law.
Here's what the IRS expects:
* Transfer ownership of the car donation to the tax-exempt charity.
* Get a receipt from the charity when it receives the car. The receipt needs to include the charity's name and registration number.
* Document the amount the charity gets when it sells the car for proceeds. The charity is required to provide written acknowledgement to the donor after the sale.
* Be prepared to show how you calculated the value of the car, if the charity plans to keep it, or it is worth $500 or less. The charity needs to substantiate the value.

Trade copies of applicable tax forms with the charity and keep them on file.

If the amount of your deduction for your car donation is more then $500.00 then you must file the IRS Form 8283: Non-cash Charitable Contributions (http://www.irs.gov/pub/irs-pdf/f8283.pdf) with your itemized tax return. A copy should be mailed to the charity or donation program. The IRS requires that the charity verify your donation and file IRS Form 8282: Donee Information Return (www.irs.gov/pub/irs-pdf/f8282.pdf). The charity should send you a copy of this form for your records when you make a car donation.

The new IRS vehicle donation policies are intended to protect charitable organizations and donors seeking to support those organizations.

In a 2003 study, the United States General Accounting Office (GAO) estimated that about 4,300 charities had vehicle donation programs. For tax year 2000, the GAO estimated that about 733,000 taxpayers claimed deductions for donated vehicles they valued at $500 or more. However, in some cases, the charity actually received less than 10% of the value claimed on the donor's return or actually lost money on some vehicles. Inflated deductions are dishonest, and they hurt the charities. Therefore, the IRS has created materials to educate donors and charities on what constitutes a well-run donation program, focusing on helping donors to correctly value their donations, and teaching them to ask the right questions to ensure that the services through which they are giving actually benefit the destination charity. In addition, charitable organizations are required to provide documentation of the gift and its value to the donor and to the IRS.

Be specific about options when making automobile donation valuations.

The fair market value of cars is affected by a number of factors. To help further define your specific vehicle's value, make sure you accurately select the options on your vehicle. These could include a sunroof, leather interior, power windows, automatic door locks, et cetera. Check all that apply, and be sure to be accurate.

Get your tax deduction for an auto donation.

You can deduct your contributions only in the year you actually make them in cash or in other property. Claim a deduction and file Form 8283 with your tax return for the year you contribute the property. For legal purposes, the date of donation is the date on which you endorse the donation paperwork, for example the date on which you sign over your title or odometer statement. Also remember that you must itemize the tax return in order to claim a tax deduction.

Review IRS car donation publications.

Before donating, make sure that you have read and understand the official IRS information on vehicle donations, which can be found in IRS Publication 4302, as well as 526 and 561. The car donation charity should provide you with online access to these documents, and be able to explain them to you if you have any questions.

The IRS can answer your questions and provide necessary forms.

The IRS can answer your tax questions on tax deductions on car donations and can provide tax forms, publications, and other reading materials for further assistance. IRS materials are accessible through the Internet at www.irs.gov, through telephone ordering at (800) 829-3676, and at IRS walk-in offices in many areas across the country. The IRS also must make available the charity's application for tax exemption, determination letter, and Form 990.

The Kelly Blue Book can be a good place to start assigning fair market value to your car.

The Kelley Blue Book can help you determine your vehicle's value when you are considering donating cars. In fact, a good car donation charity should provide a link from their website right to the KBB guide itself. It is a valuable first step in learning how to calculate value on vehicles. Start by logging on to http://www.kbb.com. [Click on: “Used cars” at top, and select the year, make and exact model of your vehicle, then press “GO”. Select "Private Party Value."] You also need to fill in the exact mileage on the car and the zip code in which you will be stating that you live on your tax return.

Timing your car donation is everything!

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. To claim a donated auto on your 2005 tax return (due next April 15), you must give it and all supporting documentation to a charity by this coming December 31. If you donate after December 31 of this year, the donation can be deducted for the NEXT tax year.

Consult the IRS Car Donation Publications to understand guidelines for determining and using fair market value.

When you have a vehicle or vehicles to donate, know when and how to use the legitimate fair market value of the vehicle. Calculating your car donation tax deduction must be done correctly.

According to IRS publication 561, "If you contribute a car, boat, or aircraft to a charitable organization, you must determine its fair market value."

Certain commercial firms and trade organizations publish guides, commonly called "blue books," containing complete dealer sale prices or dealer average prices for recent model years. The guides may be published monthly or seasonally, and for different regions of the country. These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. The prices are not "official" and these publications are not considered an appraisal of any specific donated property. But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area.

"Example: You donate your car to a local high school for use by their students studying automobile repair. Your credit union told you that the "blue book" value of the car is $1,600. However, your car needs extensive repairs and, after some checking, you find that you could sell it for $750. You can deduct $750, the true fair market value of the car, as a charitable contribution."

Note that using fair market value only applies when you donate a car to a charity and the charity retains and uses the vehicle, rather than selling it.

Definition of "Fair Market Value"

If you donate a car to a qualified charity that will keep and use the car, the value of your charitable contribution is usually the fair market value of the car at the time of the donation. Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.

Valuing a non-operational car donation requires different standards.

The Kelley Blue Book or any other published reference for valuing used cars is generally invalid for determining the amount of an itemized contribution if the car does not operate. You may want to enlist a professional appraiser to determine its value, which may be only the sum of its working parts.