Tax Information And Guide

Tax Software Donating a car to charity is not that difficult. However, you need to be aware of the new tax regulations before you donate your car to a non-profit organization. The IRS provides some general rules of thumb on car donations:

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Software Tax Starting in 2005, if the claimed value of your donated car exceeds $500 and the item is sold by the charitable organization, your tax deduction is limited to the amount of money the charitable organization actually receives from selling the vehicle.

Similarly, if you're donating a car, boat, etc., you should determine the current fair market value, and get a receipt describing the item from the charity. For donations made in 2005 and beyond, the American Jobs Creation Act of 2004 significantly increased the substantiation requirements for charitable contributions of most vehicles. Not only is donating a vehicle for tax purposes harder, it is also less rewarding for both the donor and the charity. To about the pitfalls in this area, please review IRS Publication 4302, A Charity's Guide to Car Donations, and IRS Publication 4303, A Donor's Guide to Car Donations.

Every Landlord Tax Deduction The charitable organization must provide you (the donor) with a written acknowledgement within thirty days of the sale, specifically stating the net amount they received for selling your donated car.

The publication also warns taxpayers that they are entitled to deduct only the fair market value of the car, which may be less than the "blue book" value from a used car guide. According to the IRS, some fundraisers have mistakenly advised all their donors to use the full value listed in a used car guide in every instance. To withstand IRS scrutiny, donors can use IRS Publication 561, Determining the Value of Donated Property, to calculate the value of a donated car.

Tax Help As an example, let's say you make a car donation to a non-profit charity, and the fair market value of that car is $5,000. The charity then sells the car without "significant use" or "material improvement", for a total sale price of $2,500. Your deduction is limited to $2,500, not the $5,000 fair market value.

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Help Tax This is substantially different than earlier years when you could deduct the entire estimated fair market value instead of the amount that the car donation actually raised for the charity.

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Ernst Ernst Guide Guide Tax Another caveat is that many non-profit organizations use a third-party administrative service to handle the pick-up and auction sale or your car donation. The resulting administrative fees are often 20% or more of what the car sells for at auction.

Tax Return Your tax deduction is correspondingly lowered by the amount of third-party fees because the net amount the charity receives has been reduced. In the example above, your car donation deduction would be reduced from $2,500 to $2,000.

Return Tax There are a few exceptions to these car donation tax deduction rules of thumb that are recognized by the IRS.

Guide Guide Master Master Tax Car Donations: "Significant Use" & "Material Improvements"
If the charity significantly uses or materially improves the vehicle, they must certify that in the form of an acknowledgement to the donor (within 30 days of the contribution). In the case of significant use or material improvement, the donor may usually deduct the vehicle's market value ($4,000 in the example above).

Tax Preparation To be considered "significant use", an organization must use the vehicle to substantially further its regularly conducted activities. The recipient organization's use of the vehicle:

Preparation Tax 1 - Must not be insignificant
2 - Must not be intended at the time of the donation

Employer Tax Guide Significance also depends on the frequency and duration of use by the non-profit organization.

Tax Services "Material improvement" includes major repairs or other improvements that significantly increase the vehicle's value.
Cleaning the vehicle, minor repairs, and routine maintenance are not material improvements.

Services Tax Make sure you don't get misled by a car donation sales pitch saying you can claim higher tax deductions than the IRS allows.

Master Tax Guide For more information, see IRS Publication 561, Determining the Value of Donated Property ( PDF 101K) at www.irs.gov

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