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US Tax Rules - Donating Your Automobile For A Tax Deduction
by
Steven B Jackson
I have spent several years working in casinos, learning how
to market online, helping people with their personal tax situation in the US (as
a ...
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I am sure that in recent years you have seen advertisements for donating your
used auto and deducting it on your income tax. The very first thing you need to
know when considering this is that you will need to be able to itemize. The
amount you need to itemize is dependent on what filing status you use. To
itemize, you will need enough allowable deductions that will total more than
your standard deduction.
Donating autos to charity proves beneficial to three groups. In recent years
taxpayers have over inflated valuations, and by doing so they have benefited
from large tax deductions. The charity would benefit because they would then
sell the auto, and for profit entities would benefit because they would charge
the charity organizations to sell the autos for them. As you can see, the real
loser in this was the United States Treasury, and the US government didn't like
this at all.
So now we have a new law. The American Jobs Creation Act of 2004 was enacted to
tighten the rules for donating used autos, boats and airplanes. The new rule
requires that two tests be met if the vehicle contributed, and the claimed
deduction exceeds $500.
1)The charity substantiates the contribution by reporting to the taxpayer in a
"contemporaneous written acknowledgement," which the taxpayer must include with
his or her return.
2)In general, the amount of the deduction cannot exceed the gross proceeds
received from the sale. However, this limitation does not apply if the charity
either materially improves the vehicle before sale or has a significant
intervening use of the vehicle.
A "contemporaneous written acknowledgement" is one that is provided by the donee
charity within 30 days of either one of the following; the sale of the vehicle
or a certification that the vehicle has either been materially improved or that
the charity has made significant intervening use of it.
Included in this statement must be the taxpayer ID number and the vehicle ID
number. If the vehicle has been sold, the acknowledgement needs to also contain
a certification that the vehicle has been sold in an arms length transaction
between to unrelated parties, the amount of the gross proceeds from the sale,
and a statement that the deductible amount cannot exceed the gross proceeds.
If the vehicle has been materially improved or if the charity has made
significant intervening use of it, the acknowledgement must contain a
certification of the intended use or material improvement of the vehicle and the
intended duration of such use and a certification that the vehicle will not be
transferred in exchange for money, services, or property before completion of
the use or improvements
If a vehicle is worth more than $250 but not more than $500, then an
acknowledgment needs to have the following information;
1) The amount of cash and a description (but not value) of any property other
than cash contributed
2) Whether the donee organization provided any goods or services in
consideration, in whole or in part, for the cash or property contributed
3) A description and good faith estimate of the value of any goods or services
provided by the donee organization in consideration for the contribution, or, if
such goods or services consist solely of intangible religious benefits, a
statement to that effect
If the sales price is $500 or less, the notice provides that the deduction is
the lesser of the fair market value on the date of contribution or $500.
So you want to donate, what is a reasonable method to determine market value? I
would say that if you refer to an established used vehicle pricing guide is a
reasonable method of determining fair market value. With respect to used car
guides, the IRS states that regulations establish two rules
1) Dealer retail value is not an acceptable measure of fair market value
2) For contributions after June 3, 2005, an amount not in excess of the price
listed for a private party sale of a similar vehicle is an acceptable measure of
fair market value
The IRS and the Treasury will also consider other values (i.e., dealer trade-in
value). However, any regulations that might reduce the allowable fair market
value below private party sale will not apply prior to the effective date of the
regulations.
The new valuation rules do not supersede rules for contributions in excess of
$5,000 where the deduction is not limited to gross proceeds from the sale of the
vehicle. Such instances occur when the charity:
1) Materially improves the vehicle before sales,
2) Has a significant intervening use of the vehicle,
3) Sells to a needy individual at a price substantially less than fair market
value, or
4) Makes a donation to a needy individual in furtherance of the charitable
purpose of the organization
In that event, fair market value is used and, since the contribution is in
excess of $5,000, a "qualified appraisal" is necessary. A "qualified appraisal"
is an appraisal document that
1) Pertains to an appraisal made not earlier than 60 days prior to the date of
contribution
2) Is prepared, dated, and signed, by a qualified appraiser
3) Includes the required information
4) Does not involve an appraisal fee that is prohibited
This article is intended to be informational and I would suggest you contact
your individual tax advisor for additional information as it relates to your
personal tax situation.
Steve Jackson is a professional income tax preparer with over twenty years
experience, helping clients with their individual tax situations. Steve offers
tax services and if you file online, he can be here to help you with your tax
situation, and will provide you with free updates during the year. Contact Steve
at http://www.jjackson328.com
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