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.
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