June 23, 2005 | Read Time: 2 minutes
The Treasury Department has issued guidelines to explain how donors of vehicles can take tax deductions for the gifts under a new law. The guidelines say that donors can take a larger deduction for vehicles that are eventually sold by charities to poor people for less than their real value.
The law, which took effect January 1, tightens rules for donations of cars, trucks, and other vehicles. The changes aim to prevent individuals and companies from taking overly generous deductions for such donations (The Chronicle, October 28).
The law limits a donor’s income-tax deduction for a contributed car, truck, boat, or airplane to the amount a charity receives for selling it, in most cases. Previously, a donor could deduct a vehicle’s fair market value.
The law has two exceptions: A donor may continue to deduct the fair market value of a vehicle if the charity uses the vehicle rather than selling it, or if the charity fixes it up before selling it.
In its guidelines, the Treasury Department added a third exception after receiving comments about the law from charities that sell donated cars at cut rates to needy people. The charities were concerned that donors would not contribute vehicles if the deductions they could claim were substantially less than the value of the gifts. The guidelines now allow donors to claim deductions for the fair market value of vehicles that charities sell at a low price to people with low incomes.
The guidelines make clear that charities must supply receipts to donors of vehicles that state the selling price of the vehicles or that one of the three exceptions has been met.
The law does not apply to donated vehicles worth less than $500.
A copy of the guidelines, Notice 2005-44, is available at http://www.irs.gov/pub/irs-drop/n-05-44.pdf.
