Update: Someone complained that when I blog about accounting it interferes with her attempt to escape from CPA land. So, in the future (Well, assuming I remember. If I forget someone please remind me.) posts about accounting or taxation will be proceeded by:
*** Warning! Warning! Danger Will Robinson! Accounting lingo ahead! ***
I hope that will be satisfactory. Now on to the post.
One of the common fundraising techniques for charitable organizations lately has been to ask people to contribute vehicles to the charity which the charity could then sell. This was advantageous for taxpayers because generally they could deduct the contribution based on the "fair market value" of the vehicle. (This is often determined by looking up the blue book value. That's something that's quite easy to do by using Kelly Blue Book online.) This value could be used, even if it was significantly higher than the amount the charity eventually received on the sale.
Unfortunately, many people unkowingly made contributions to fraudulent organizations or were scammed by 3rd party promoters into making the contributions in a way that was not actually tax deductible.
The IRS has been very concerned about this and has announced new rules for 2005.
Under the new rules that go into effect in 2005, if the claimed value of a donated motor vehicle, boat or plane exceeds $500, and the item is sold by the charity, the taxpayer's deduction is limited to the gross proceeds from the sale. The charity must provide an acknowledgment to the donor stating the amount of the gross proceeds within 30 days of the sale. Also, under the new rules, the charity must provide an acknowledgment to the donor within 30 days of the contribution if the charity will significantly use or materially improve the motor vehicle. In that case, the donor generally may deduct the market value of the vehicle.
Taxpayers who will be donating a motor vehicle to charity by December 31, 2004, may still be able to deduct the fair market value of the vehicle under the current rules. However, taxpayers need to remember a number of existing requirements that must be met in order to qualify for a deduction for 2004. First, taxpayers should check that they are donating the car to an eligible organization. Donations to churches, synagogues, temples, mosques and governments are generally tax deductible. Other eligible charities are be listed in IRS Publication 78, which is available in many public libraries and on the IRS website at www.irs.gov.
In addition, the IRS is reminding taxpayers who donate a car to an eligible organization that they will benefit from a charitable deduction only if they itemize their deductions. Thus, the taxpayer's total itemized deductions need to be greater than the taxpayer's standard deduction for 2004 ($9,700 for married taxpayers filing joint returns and $4,850 for single filers).
The three major things to remember from all this is that if you want to deduct a vehicle this year make sure you have plenty of documentation, starting next year, for any vehicle deductions over $500 you must have a receipt stating the value that is deductible, and finally if the charity is going to sell the vehicle immediately you cannot, under any circumstances, deduct an amount greater than the charity received at the sale.
Comments