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Article Series: Taxes
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Tax
Breaks For Donating Your Car to a Charity
If you have an old car taking up space in
the driveway, but you can’t bring yourself to face the hassle
of trying to sell the car in the newspaper classified ads,
there’s another way you can rid of it. Contact your
favorite charity and see if they are interested in taking the
car off
your hands. Not only is giving your car away to a charity good
for deposit in your karma bank, when tax time rolls around,
that donation can help keep some of your cold hard cash in
the bank as well by allowing you to take a potentially sizable
deduction.
First, a little bit of bad news: giving
a car away to charity for a tax break is not as easy as
it used to be. The old tax
laws let you write off the fair market value of any car you
gave away to a charity group. Fair market value was determined
by auto industry standard evaluation services, like the Kelly
Blue Book, so if the Blue Book value of your car was $2,000,
you got to write that whole amount off when tax time arrived.
That system was fraught with abuse, however, with people claiming
inflated donation values in the amount of $654 million in one
year alone. Therefore, the law changed in 2005, and the IRS
now places some rules on the way donation deductions are claimed.
As a general rule of thumb, the IRS
places a cap on vehicle donation deductions of $500. If your donation is worth more
than that, then you will meet a few criteria before you can
claim your deduction. First, you need to know how the charity
is using your car. If they take if from you and sell it, then
the price they sell it for is the amount you can claim as a
deduction, even if it is less than the value of the car. If
the charity sells your car for more than it is worth, you can
only claim a deduction up to the fair market value of the vehicle.
There
are a few exceptions. If the charity decides to give
the car away to a needy person, or if they sell the car to
a needy person for far below the fair market value, then in
most cases you can claim the actual worth of your car as your
deduction. Also, under the “Intervening Use Exception,” if
the charity uses your car for awhile before selling it, and
then sells it for below the fair market value, you can claim
the value of your car at the time of the donation as your deduction,
since their use of the car lowered the value. However, if the
charity makes improvements to the car during their time using
it that increase the value of the car, and then they turn around
and sell it for more than it was worth when you donated it,
you can still only claim the fair market value of the vehicle
at the time of donation. Whichever circumstance applies to
you, the charity should notify you in writing within 30 days
of receipt of the car of their intentions for the car and the
donation value. If they sell the car, they must notify you
within 30 days in writing of the sale price.
Keep in mind that deductions are not subtracted directly from
your tax bill, but rather allow you to reduce your tax bill
by a percentage. Exactly how much a deduction will take off
your tax bill depends on your income and how you file.
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SolveYourProblem.com : 2007
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