|
By CARRIE MARX
Guest columnist
Charitable contributions are the third largest itemized deduction
claimed on individual tax returns each year, falling after only
interest and taxes.
In 2004, individual charitable gifting increased 4.1 percent from
2003 levels to $187.92 billion, according to the Giving USA Annual
Report on Philanthropy.
One current trend in charitable contributions is donating used
vehicles.
Many organizations accept automobiles from donors and then sell
them, using the proceeds to fund their charitable activities. As
with any charitable donation, it is key to verify that the
organization you have in mind is qualified to receive tax-deductible
contributions. A listing of most qualified organizations can be
found in Publication 78 at the Internal Revenue Service Web site (
www.irs.gov).
There are strict requirements for donating automobiles when the
amount you claim as a deduction is more than $500. In previous
years, many taxpayers claimed the fair market value of the vehicles.
As a result of perceived abuses, the law was changed and now the
amount allowed as a deduction on your tax return depends on what the
organization does with the vehicle. Generally, if the charity sells
the automobile, your deduction is limited to the gross proceeds the
charity receives, assuming the auto was sold without significant
intervening use or material improvement to the automobile.
If the organization sells your vehicle for $500 or less and the fair
market value is greater than $500, your deduction is limited to
$500. It is important to remember you get the charitable deduction
in the year you donate your vehicle to charity, even if the charity
sells your vehicle in the following year.
One exception to the above rule that limits the deduction to the
sales price comes when a charity sells the vehicle to a needy person
at a price significantly below fair market value in direct
furtherance of its charitable purpose. Another exception is when the
charity keeps the vehicle and uses it for charitable purposes. In
either of these cases, you can generally deduct the fair market
value of the auto as of the contribution date.
The substantiation requirements for donating autos are also
important. The law requires a “contemporaneous written
acknowledgment” from the donee charity, commonly fulfilled with form
1098-C. The charity must give this to you within 30 days of the sale
of the vehicle. In order for a deduction of $500 or more to be
allowed by the IRS, you must attach this acknowledgment to your tax
return. If the charity sells the vehicle this acknowledgement must
include the following items:
•The donor’s name and taxpayer identification number
•The vehicle identification number
•The date of the contribution
• A certification the vehicle has been sold in an arm’s-length
transaction between two unrelated parties
•The amount of the gross proceeds from the sale
•A statement that the deductible amount cannot exceed the gross
proceeds |
