Donating Cars To Charity - New Tax Rules
Below is a MRR and PLR article in category Finance -> subcategory Taxes.
Donating Cars to Charity: New Tax Rules
In June 2005, the IRS provided new guidelines on how charitable deductions for donated vehicles are handled, following changes brought by the American Jobs Creation Act (AJCA). This act significantly alters how deductions for donated cars are calculated.
Fair Market Value vs. Actual Sales Price
Previously, you could deduct the fair market value when donating a car. Now, the deduction is based on the actual sales price when the charity sells the vehicle. To claim this deduction, you must receive written and timely acknowledgment from the charity.
Exceptions for Fair Market Value Deductions
The AJCA outlines specific exceptions where you can claim a fair market value deduction:
1. Significant Intervening Use: If a charity uses the vehicle extensively, such as for delivering meals, you may deduct the full fair market value. For instance, if the vehicle is used to drive 10,000 miles in a year for such a purpose, this qualifies as significant use.
2. Material Improvement: If a charity makes substantial improvements to the car, increasing its value through major repairs rather than simple cleaning or painting, a fair market value deduction is permitted.
Additionally, the IRS has introduced another exemption. You can claim a fair market value deduction if the charity sells or gives the car at a substantially reduced price to a needy individual, aiding someone who lacks transportation.
Determining Fair Market Value
To establish the fair market value, consult vehicle pricing guides that list trade-in, private-party, and dealer retail prices. The IRS considers the private-party price as the maximum fair market value for donation purposes.
Conclusion
The changes introduced by the AJCA may make car donations seem less appealing. However, by understanding and utilizing the available exemptions, you can still secure a significant deduction while supporting those in need.
You can find the original non-AI version of this article here: Donating Cars To Charity - New Tax Rules.
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