You’ve seen the ads: “Donate your car and get a tax break.” While that’s true, some people who give away an old auto might find their tax break smaller than they expected. And a few donors, thanks to the intricacies of vehicle gift guidelines, might be able to boost their deduction amounts.
Giving away an old to a charity was once straightforward. You could claim its fair market value — that is, the amount a willing buyer would pay a willing seller for the product. You’d refer to auto valuation services, like Kelley Blue Book, to get an idea of the donated car’s value, give it to your favorite nonprofit and then drive off with a tax break equal to that valuation amount. No more.
Because some taxpayers got greedy, claiming much more than their old cars were worth, lawmakers tightened the rules on how much you can write off for a vehicle donation. Now the precise tax break depends on the donor’s claimed value of the gift and how the charity uses the vehicle.
“This puts taxpayers in the unusual situation of not knowing the size of their deduction when they make the donation,” says Bob D. Scharin, senior tax analyst from the Tax & Accounting business of Thomson Reuters.
In most instances, a taxpayer must take into account a $500.00 threshold on vehicular gifts. This value amount applies to autos, boats and even airplanes. When the donated vehicle’s value (based on credible fair market value analyses) exceeds that amount, claiming the deduction gets more complicated.
This valuation ceiling comes into play when a charity sells a donated vehicle. In this case, just how much a taxpayer can deduct depends on the amount the sale nets.
For instance, you donate your old station wagon worth $1,000. Under the old rules, that would be the amount you could deduct. But now, if the charity turns around and sells your donation for $800.00, your deduction is limited to the lower sales price.
The charity must give you substantiation of the Internal Revenue Service-allowed donation amount within 30 days of when you turn your car over to the charity or, if the group sells the auto, within 30 days of the vehicle’s sale.
By now, you should have gotten word from the charity as to what it did with your old vehicle. If you haven’t heard from the charity, give it a call and ask that it send, or resend, you the donation specifics.
Plus, you now must include a copy of the acknowledgment with your tax return. Previously, such receipts were generally only kept by the taxpayer in case the IRS questioned a claimed deduction.
Read more: http://www.bankrate.com/finance/money-guides/donating-a-vehicle-to-charity-1.aspx#ixzz2TifZZ2QF