CAR DONATION TAX GUIDE for 2009

Tax deduction is reduction of a taxpayer’s total income that decreases the amount of money used in calculating the tax due. A tax deduction is a break granted by the government. In donating a car to charity, there are a few aspects of the process you should be familiar with. Donating a car may or may not make good financial sense. But before donating a car, make sure you are dealing with a reputable donation service or qualified charity.

Prior to donating a car, you should decide which charity you choose to donate and make certain listed which are qualified charity with the Internal Revenue Service (IRS). Some charities use a car donation service, and others handle vehicle donations themselves. Donating a car can be complicated without the understanding about tax laws. You can only claim a vehicle donation tax deduction if you itemize deductions when filing.

The IRS revised the Charity Car Donation Tax Law to pursuit to curb inflated tax deductions. The Revision eliminates loopholes and deficiencies that donors have learned to abused to trade off better value for their old cars. The taxpayers will benefit more in giving away their beat up cars in exchange for substantial tax cuts. Since its execution, donors or taxpayers are limited to the price their donated vehicle fetches based on its actual value. In the case, when the charitable institution uses or materially improves the vehicle, the donors or taxpayers may then deduct the total cost of the vehicle’s market value, which may reflected on their tax deduction. For qualifying for the deduction, you must take itemized (no standard deduction) deductions on the schedule A of Form 1040. The Copy B of Form 1098-C should be attached for the contributions of Motor Vehicles, Boats, and Airplanes, to the income tax return in order to take a deduction for the contribution of a qualified vehicle with a value of more than $500.

The amount that may deduct for the vehicle contribution depends upon what the charity does with the vehicle from the written acknowledgment that you may received from the charity. If the charity sells the vehicle, generally the deduction is limited to the gross proceeds from the sale. If the value of the vehicle is less than $500 you can claim a deduction for the lesser of the vehicle’s fair market value or $500 but it need to provide a written acknowledgment from the charity that complies with the requirements described. But when the vehicle contribution deduction is more than $500 it will need a written acknowledgment from the charity with the information such as: your name and taxpayer identification number, the vehicle Identification Number, the date of the contribution and one of the following

• a statement that no goods or services were provided by the charity in return for the donation OR
• a description and good faith estimate of the value of goods and services OR
• a statement that goods or services provided by the charity consisted of intangible religious benefits

Make sure the written acknowledgment is attached to the tax return.