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Donating Your Car To Charity
By: Greg Reynolds
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:
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.
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.
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.
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.
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.
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.
There are a few exceptions to these car donation tax deduction rules of thumb
that are recognized by the IRS.
Car Donations: & quot;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).
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:
1 - Must not be insignificant
2 - Must not be intended at the time of the donation
Significance also depends on the frequency and duration of use by the non-profit
organization.
"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.
Make sure you don't get misled by a car donation sales pitch saying you can
claim higher tax deductions than the IRS allows.
For more information, see IRS Publication 561, Determining the Value of Donated
Property ( PDF 101K) at www.irs.gov
About the Author:
Greg Reynolds writes about fundraisers and fundraising events for schools,
churches, and nonprofit organizations. Signup for the free monthly newsletter at
www.fundraiserhelp.com and get free samples from top suppliers.
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