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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.
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.
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.
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.
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.
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.
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.
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.
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.
There are specific Internal Revenue Service regulations on donating cars. The IRS has approved many different types of organizations that accept charitable car donations and then use the proceeds from the sale of the vehicles for charitable purposes and provide the donor with a tax deduction. Remember: choose only IRS-approved car donation charities if you want to take a deduction, and deduct only up to fair market value for the car.
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.
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 IRS only allows taxpayers to use the fair market value for a car donation tax deduction, when certain conditions are met.
The car donation cannot be worth more than $500 to receive a car donation tax deduction. Or, the car donation has to be used directly by the charity in its programs or services.
For example, if a charity uses a car donation for its meals-on-wheels program, the donor may be entitled to claim the car's fair market value as a tax deduction.
But the vehicle needs to be in proper condition for the donor to assign fair market value.
Be careful. Your used car's value may not be as high as the listing in area pricing guides. High mileage and the vehicle's condition may lower the value.
Check with the IRS to learn more on figuring your car donation's value at tax time.
Two publications may help: IRS Publication 526, "Charitable Deductions," and IRS Publication 561, "Determining the Value of Donated Property."
The guidelines make it easier for taxpayers to follow car donation tax law when giving to charities.
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.
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.
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.
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.
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.
Your tax consultant may assist you in deciding how to value your car donation, but you - the donor - and not the recipient charity, are required by the IRS to be the sole party responsible for determining what the IRS calls the "fair market value" of your car donation, taking into full consideration its condition at the time of donation. Most vehicle donation programs or a good car donation charity will assist you with this. When making car donations for charity, it is very important point to be accurate and fair in assigning a value to your vehicle; do not inflate the value you claim as a tax deduction.
Some fundraisers have mistakenly claimed that donors can, in all cases, deduct the full value of their cars as found in a used car guide (such as “blue book” value). A used car guide may be a good starting point from which to determine your car's value, but you should exercise caution. The IRS will only allow a deduction for the fair market value of the car, which may be substantially less than the “blue book” value. If you are planning to claim tax deductions on car donations, you need to be accurate in making car donation valuations.
Car donation tax deductions are only accepted for donations made to tax-exempt charities. So it is incumbent on the taxpayer to verify an organization's tax-exempt status. Ask to see the charity's IRS letter recognizing it as tax-exempt. You may also call the IRS, toll free, at 1-877-829-5500, to verify an organization's tax-exempt status. IRS Publication 78 lists many organizations eligible to receive tax-deductible charitable contributions, including car donations. Access the information online at www.irs.gov/charities, then download a copy of Publication 78.
If your donation is worth more than $5,000, then you will need an appraisal and a signed 8283 tax form for your tax purposes. Most charities that accept car donations can arrange to have your vehicle valued by an independent appraiser and provide you with all the necessary documentation to properly claim your tax deduction without any cost to you. It is important to get accurate automobile donation valuations. The charity you choose can help you to learn how to value cars.
When donating a custom or collector car, the car donation tax law remains the same as far as the IRS is concerned: a donor may deduct up to the fair market value of the vehicle when the vehicle is kept and used by the charity. In the case of a collector's item, rather than a standard vehicle, fair market value may be somewhat harder to determine. Nevertheless, you need to ascertain the fair market value for the car, rather than just deducting the money you've put into it. The IRS defines fair market value as "...the price a willing buyer would pay and a willing seller would accept for the car, when neither party is compelled to buy or sell, and both parties have reasonable knowledge of the relevant facts." Obviously, the market for collector's cars is smaller than for regular cars. There is a certain segment of the population that understands and appreciates the value of a car like yours, and might be willing to pay you what you think its worth. But others would not. So you need some legitimate way to document how you came up with the figure; it may make sense to use an appraiser. In any event, if you think the car is worth more than $5000, and want to take that amount or more as a deduction, a professional appraisal is needed. The appraiser has to sign off on your Form 8283, which is the form you submit with your tax return when you donate a car.
If you claim a deduction on your return of over $500 for all contributed property, you must attach a Form 8283 (PDF), Non-cash 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 group of similar items, you need to complete Section B of Form 8283, which requires a qualified appraisal by a professional appraiser.
Another good way to find out the value of your car donation is to look in local newspaper ads for "comparables" - models with similar wear and tear.
Many states require charities that solicit contributions to register and file certain documents with a state charity regulator, such as the state attorney general or the secretary of state. Most charities must file in their state of incorporation and in other states where they have activities. Many of the state charity officials provide useful information about charities and fundraisers on web sites and in brochures and publications.
A charity must make available for public inspection its application for tax exemption, its determination letter, and its most recent annual information returns (Forms 990). A charity also must provide copies of these documents upon request (unless it makes the documents widely available). A charity may not charge you for inspecting the documents, but it may charge a reasonable fee for copying and mailing the documents.
Be prepared to itemize your car donation tax deduction when filing your taxes. Most Americans do not itemize on their taxes, so it is not a routine practice for them. But in order to get a car donation tax deduction, you must take the extra step.
If you are unsure how to itemize, it's a good idea to seek help from an accountant. Car donation IRS rules require that donors fill out Form 1040, Schedule A.
There may be other forms and documentation required, depending on the value of the car donation. The IRS also wants donors to keep records on how they calculated the car donation tax deduction.
The IRS, for example, requires that cars valued at $500 or less be deducted at no more than "fair market value." The value you assign the car cannot be more than the sales prices listed in a used vehicle pricing guide, such as the Kelley Blue Book.
Donors must also consider the vehicle's condition and mileage when setting the value for a car donation. When the car donation is valued at more than $500, the amount of the car donation tax deduction depends on how the charity uses the gift. If you want more detailed information, the IRS offers free materials. Go to www.irs.gov, or phone, toll free, 1-800-829-3676.
Car donation programs are popular vehicles for charities to raise funds. Car donations appeal to taxpayers who want to get rid of used vehicles and take the tax deductions. IRS rules give specific guidelines for taxpayers seeking a car donation tax deduction.
There are several steps to take to meet car donation tax law.
* First, verify that the recipient organization is tax-exempt.
* If the vehicle is worth $500 or less, you can deduct its fair market value at tax time.
* If the vehicle is worth more than $500, your deduction is the amount the charity gets reselling the car. There are special exceptions to this rule.
* Finally, research and know state laws regarding title transfers for car donations.
Qualified organizations that receive vehicle donations after December 31, 2004, must give the donor a written acknowledgement of the donation if the claimed value of the donated vehicle is more than $500. The acknowledgement must include the donor's name and taxpayer identification number (TIN), the vehicle identification number (VIN), a statement certifying the organization sold the car in an “arm's length” transaction between unrelated parties, the gross proceeds from the sale, a statement that the donor's charitable contribution deduction may not be more than the gross proceeds from the sale, and the date of the contribution. This acknowledgement must be provided within 30 days of the sale of the car. The organization also must provide this information to the IRS.
If there was significant intervening use of or material improvement to the car by the organization, the acknowledgement does not have to include the statement certifying the organization sold the car in an “arm's length” transaction between unrelated parties, the gross proceeds from the sale, or a statement that the donor's charitable contribution deduction may not be more than the gross proceeds from the sale. Instead, it must contain a certification of the intended use of or material improvement to the car and the intended duration of that use, as well as a certification that the vehicle will not be transferred in exchange for money, other property, or services before completion of that use or improvement. This acknowledgement must be provided within 30 days of the contribution. The organization also must provide this information to the IRS.
You can deduct contributions to charity only if you itemize deductions on your Schedule A of Form 1040. You must take into account certain limitations on charitable contribution deductions. For example, your deduction cannot exceed 50% of your adjusted gross income. Other limitations may apply. Publication 526, Charitable Contributions, provides detailed information on claiming deductions and the deduction limits. It also describes the types of organizations that are qualified to receive tax deductible contributions. Publication 526 is available online at www.irs.gov or by calling (800) 829-3676 (toll-free).
For information about determining the "fair market value" of a vehicle you can read "Publication 526 Charitable Contributions" at http://www.irs.gov/pub/irs-pdf/p526.pdf. You should read the entire publication. Be sure to read the section entitled "Contribution of Property" and a section called "Determining Fair Market Value." Another section called "Cars, boats, and aircraft" will help you in situations of donating these types of properties. Another helpful IRS document is Publication 561, entitled, "Publication 561 Determining the Value of Donated Property," located at: http://www.irs.gov/pub/irs-pdf/p561.pdf.
Keep as many records as you can to support your tax deductible vehicle donation. Once you have determined the vehicle's fair market value, make sure you can back it up. Take a photo of your car so you can show the IRS its condition at the time of donation. To be thorough, include exterior shots, interior shots, and a photograph of the odometer reading. For even more validation of the donation, use your camera's time and date stamp feature.
If you are eligible to deduct charitable contributions for federal income tax purposes and you want to claim a deduction for donating your car to charity, then you should make certain that the charity is a qualified organization. Otherwise, your donation will not be tax deductible. The most common types of qualified organizations are section 501(c)(3) organizations, such as charitable, educational, or religious organizations.
Car donation tax law changed in 2005 for taxpayers who claim a deduction greater than $500. If the vehicle is sold by the charity, the deduction claimed by the donor cannot exceed the gross proceeds from the sale. Taxpayers also need to supply Form 1098-C to the IRS, or a written acknowledgement by the charity that states the gross proceeds from the sale. The statement needs to be attached to the taxpayer's return. It must contain the Vehicle Identification Number, known as the VIN. The charity must also state in the acknowledgment that the transfer was between unrelated parties.
Under new car donation IRS rules, you can only deduct up to the value for which a charity sells the donated vehicle, unless the charity keeps and uses the vehicle, or makes material improvements to the vehicle before selling it. Find out whether the charity will be retaining and using the vehicle, or making improvements to the vehicle before re-selling it. If so, use fair market value. If not, then the charity will provide you with and accounting of the price at which it sold the vehicle, and you can deduct that amount from your annual federal taxes.
Be careful to follow car donation IRS rules when claiming a car donation tax deduction. They changed in 2005 to end abuses in the popular practice of giving used and unwanted cars to charities.
If you are confused or unsure of the car donation IRS rules, it is best to contact an accountant or the IRS for information. The IRS runs a compliance program for noncash donations, such as car donations to charities. The program compares the amount a charity gets for selling a donated car with the amount the taxpayer claimed. If the IRS has questions, it will launch a review of the car donation.
Several IRS guides outline the car donation tax rules. They are:
* Publication 526, "Charitable Contributions";
* Publication 557, "Tax-Exempt Status for Your Organization";
* Publication 561, "Determining the Value of Donated Property";
* Publication 1771, "Charitable Contributions -- Substantiation and Disclosure Requirements";
Publication 4302, "A Charity's Guide to Vehicle Donations."
Car donation tax deductions lowered American consumers' tax liability by a whopping $654 million, according to IRS figures for 2000. Vehicle donations are increasingly common, with solicitations for donated cars routine by major charities.
While it is easy to find a charity that will take your gift, it is critical to understand new car donation tax law and how the vehicle donation process works. Otherwise, you cannot receive your car donation tax deduction.
By making careful decisions, taxpayers can provide support to favorite causes, dispose of unwanted vehicles and get tax breaks. But they must follow car donation IRS rules designed to keep taxpayers from inflating the value of donated vehicles.
Be prepared to answer the charity's questions about the vehicle. The charity will ask about the car's condition, mileage and age. If the charity collects the vehicle, it is likely to sell it for proceeds. The amount it receives will be your car donation tax deduction.
Gone are the days when every donor could use the fair market value as his or her car donation tax deduction.
|Jennifer Mathes, Ph.D.|