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Key Changes in the Car Donation Tax Law
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President George W Bush made major changes in the car donation law as part of the signing of the new JOBS bill on October 22,2004. Those that plan to donate their old cars to charity should consider the changes before finalizing their decision in order to properly claim the tax benefits.
The Internal Services Revenue has released a new set of guidelines for auto donations to help limit overhauled auto donation. Starting January 1 2005, a donor donating a vehicle with a fair market value of $500 will recieve a deduction that will be based on how the recieving charity will use the unit. This change on the car donation law means that the donor will be only be able to deduct from his taxes how much the charity earned from selling the vehicle.
The donor will also have to rely on the receiving organization to inform him about the size of the proceeds by the deadline of the individual tax-filing season. The donor will only be able to claim a tax deduction similar to the fair market value of the vehicle if the charity uses the car in "significant" tax-approved charitable work.
Another critical part of the car donation law is the attachment of a Form 8283 on tax claim deductions of above $500 for donated property. In tax deduction claims of over $5,000, section B of the form needs to be filled or Form 8283, which requires an appraisal from a qualified appraiser.
The donor needs to update himself on the status of the donation in order to validate the fair market value of the car. A written acknowledgement from the charity will be required in car donations valuing $250 or more. The statement should include a description of the donated vehicle and whether the charity gave any goods and services in return for the donation and an estimate of its fair market value.
How big is your tax deduction?
Several resources are available on the Internet to help donors determine the fair market value of their rides. However, the actual condition of the car should be among those most considered in making donations.
- According to the car donation law, donors will qualify for the minimum tax deduction of $500m if the donated car is categorized as low value. Such transactions are quickly finished and paperwork is minimal.
- The sale price of a donated vehicle will be equal to the tax deduction that will be awarded to the donor.
- Cars in satisfactory running condition can be used for charitable functions deemed acceptable by law such as delivery of food or transporting officials from one place to another.
What organization is qualified to run car donation programs?
The charity receiving the vehicle should be properly sanctioned by the Internal Services Revenue. Making donations to a non-authorized organization might not qualify the donor to a tax deduction. The web domain of the IRS has Publication 78, which is an annual list of charities that run sanctioned car donation drives. Locations and correct names of the charities can also be found on the list.
Popular charities that have car donation programs include Easter Seals, the Red Cross, Big Brothers/Big Sisters, MAD, the American Cancer Society and the United Way.
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