Vehicle Donations New Tax Law

Vehicle Donations

Vehicle Donations New Tax Law - Beginning January 1, 2005, new federal tax legislation governing vehicle donations goes into effect. The following is a summary of the new legislation contained in (HR 4520).

Veheicle Donations and the New Tax Law

Under the new law, allowable deductions for charitable contributions of vehicles, boats and airplanes, referred to as "assets" in this summary, for which the claimed value exceeds $500 will depend how the asset is used by the recipient charity. If the organization sells the asset without any significant intervening use or material improvement, the donor’s deduction is limited to the gross sales proceeds received by the charity. But, if the organization uses the asset in direct furtherance of its charitable purpose the donor may deduct the "fair market value" of the asset. (According to the IRS, the donor, not the recipient charity, must determine the "fair market value" which the IRS describes as the price that a willing buyer and willing seller would agree upon if neither were pressured to do so.

Examples: If a vehicle with a "fair market value" of $5000 is donated directly to the non-profit charity and the organization sells the vehicle for $2000, the donor can only deduct $2000. But, if for instance, the organization provides the vehicle to a disadvantaged person, the donor may deduct the full "fair market value" of $5000.

Substantiation requirements when the claimed value exceeds $500 are as follows: No deduction is allowed unless the donor receives a written acknowledgement from the charity. That document must include the name and taxpayer identification number of the donor and the vehicle identification number (or similar number) of the asset.

Additional documentation is required but is dependant on how the asset is used by the charity:

In the event the charity sells the asset without any significant intervening use or material improvement, the charity must send a written acknowledgement to the donor within 30 days of the sale certifying
  • that the asset was sold at an arms length transaction between unrelated parties

  • the amount of the gross sales proceeds

  • include a warning that the donor’s deduction is limited to the sales proceeds

If the charity intends to make significant use of the donated asset (such as providing a donated vehicle to a disadvantaged person) or make material improvements, the required written acknowledgement must be provided within 30 days of the contribution and must certify:
  • the intended use and duration of such use or the material improvements to be made

  • that the asset will not be transferred in exchange for money, other property, or services before completion of such use or improvements.

Vehicle Donations New Tax Law

For property sold under $500, you may claim the greater of either the fair market value or the sales price, up to $500.00.

For property valued over $500, the following applies;

Vehicle Donations New Tax Law(IRS form 1098-C)

If we administer material improvements, we will print a detailed description of these improvements on the tax receipt (IRS form 1098-C). If the IRS determines that the improvements listed on the 1098-C form constitute significant material improvements, then the donor may be allowed to deduct up to private party value. Private party value can be determined a number of ways such as; a valuation guide (Kelley Blue Book, NADA, Edmunds) or an appraisal by an independent appraiser. If significant material improvements are not made to the property, then according to the new tax laws, the amount that can be claimed by the donor as a deduction is determined in most cases by what it actually sells for (the gross selling price). Action Donation Services will issue your tax receipt on behalf of your chosen charity and mail it to you as soon as your property is sold. We will mail one copy of the 1098-C form to the IRS and two copies to you. You must attach a copy of IRS Form 1098-C to your tax return when claiming deductions
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