IRS Regulations

If you follow the established IRS rules when you donate a car to a charity you should be able to receive a healthy deduction.

The IRS has revised the rules for taking a deduction for those who donate a car or other vehicle to charity. Car and other vehicle donations to charities have become quite popular in the last few years, and the IRS decided that they should clarify the process of deducting of the value of donations.

IRS Regulations regarding tax deductability of Car Donations

If you donate a car to a qualified organization after December 31, 2004, your deduction is limited to the gross proceeds from its sale by the organization. This rule applies if the claimed value of the donated vehicle is more than $500. However, if the organization makes significant intervening use of or materially improves the car, you generally can deduct its fair market value.

Boats, aircraft, and other vehicles.

These rules also apply to donations of recreational vehicles, campers, boats, aircraft, and any vehicle manufactured mainly for use on public streets, roads, and highways.

Acknowledgement required.

If the claimed value of the car is more than $500, you must have a written acknowledgement of your donation from the organization and must attach it to your return. If you do not have an acknowledgement, you cannot deduct your contribution.

The acknowledgement must include the following information.

• Your name and taxpayer identification number.
• The vehicle identification number or similar number.
• A statement certifying the car was sold in an arm’s length transaction between unrelated parties.
• The gross proceeds from the sale.
• A statement that your deduction may not be more than the gross proceeds from the sale.
• The date of the contribution.

However, if there was significant intervening use of or material improvement to the car by the organization, the acknowledgement does not have to include the information in items 3, 4, and 5 above. Instead, it must contain a certification of the intended use of or material improvement to the car and the intended duration of that use and a certification that the vehicle will not be transferred in exchange for money, other property, or services before completion of that use or improvement.

This acknowledgement must be provided within 30 days of the sale of the car or, if there is significant intervening use or material improvement of the car by the charity, within 30 days of the date you donated the vehicle.

The organization or charity also must provide this information to the IRS.

Donations of inventory.

These rules do not apply to donations of retail inventory. For example, these rules do not apply if you are a car dealer who donates a car from your inventory of cars for sale to the public.

More information.

The IRS expects to issue more guidance on these rules early in 2005.