Thursday, October 13, 2005

Contributing Your Car to Charity

A popular method of gifting to charities is to contribute an automobile that would otherwise be sold or traded in. Unfortunately, there was a perception that taxpayers were putting a value on the contributed automobile that was oftentimes much higher than what the charity could get for the car when it sold it.

Under new rules that take effect this year, the deduction for “qualified vehicles” (motor vehicles, boats and planes that aren't inventory or held for sale in the ordinary course of business) contributed to charity for which the claimed value exceeds $500 is dependent on the charity's use of the donated property. If the charity sells the vehicle without any “significant intervening use” or “material improvement,” or transfers it to other than a needy person at a price significantly below fair market value in furtherance of its charitable purpose, the donor's charitable deduction can't exceed the charity's gross proceeds from the sale. The IRS has released new Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes to report such transfers.
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