On June 3, 2005, the IRS released guidance on charitable deductions for donated vehicles. The American Jobs Creation Act (AJCA) radically changed the amount of the deduction taxpayers can claim for their donated car.
Fair Market Value v. Actual Sales Price
When donating a car to charity, a taxpayer traditionally was allowed to deduct the fair market value. The new law changes this valuation to the actual sales price of the vehicle when sold by the charity. The taxpayer is also required to get written and timely acknowledgment from the charity in order to claim the deduction
The AJCA does provide some limited exceptions under which a donor may claim a fair market value deduction. If the charity makes a significant intervening use of a vehicle--such as regular use to deliver meals on wheels-- the donor may deduct the full fair market value. For example, driving a vehicle a total of 10,000 miles over a one-year period to deliver meals is a significant intervening use.
The AJCA also allows a donor to claim a fair market value deduction if the charity makes a material improvement to the vehicle. Under the guidance, a material improvement means major repairs that significantly increase the value of a vehicle, and not mere painting or cleaning.
Interestingly, the IRS has also added an exemption not included in the AJCA. On its own, the IRS has determined that taxpayers can claim a deduction for the fair market value of a donated vehicle if the charity gives or sells the vehicle at a significantly below-market price to a needy individual, as long as the transfer furthers the charitable purpose of helping a poor person in need of a means of transportation.
If you intend to assert one of these exemptions, how do you determine the fair market value? Generally, vehicle pricing guidelines and publications differentiate between trade-in, private-party, and dealer retail prices. The IRS consider the fair market value for vehicle donation purposes to be no higher than the private-party price.
The new provisions of the Americans Job Creation Act certainly make it less attractive to donate a car to charity. Using the exemptions, however, you can still create a sizeable deduction while helping others who are less fortunate.
Richard Chapo is CEO of http://www.businesstaxrecovery.com - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review.
article_text... Read More
article_text... Read More
article_text... Read More
article_text... Read More
article_text... Read More
article_text... Read More
article_text... Read More
The 100 year old investment-banking firm of Warburg, Dillon Read (on Park Ave... Read More
Small Businesses Filing Amended Federal Tax Returns to Recover Money By Darren Oliver April 15th may be gone but, but certainly not forgotten ? especially if you, like millions of small businesses, unknowingly overpaid your federal taxes and can recover money by filing an amended return... Read More
How Home-Based Businesses Can Avoid Giving Uncle Sam More than His Share By Darren Oliver With the rush to file your taxes by April 15th, you probably did not consider the possibility that you overpaid... Read More
In trying to comply with tax laws for your e-business, you may find yourself falling down the rabbit-hole, going through the looking glass, and attending a Mad Tea-Party... Read More
One way to maximize your business profits is by reducing your taxes... Read More
Does this scene sound familiar? It's April 7... Read More
As a sole proprietor, it's wise to familiarize yourself with the some key deductions that may reduce your tax bill for 2004... Read More