IRS Rules on Car Donations

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IRS Rules on Car Donations

Article by Sarah Michaels

Over the years, many people have chosen to donate a used car to the charity of their choice. Not only is it an excellent way to support a cause that you truly care about and believe in, many see the tax write-off benefit as an added bonus. Over the past year, car donations (along with charitable donations in general) have gone down, due to both a weak economy that has put a strain on quite a few wallets, and the opportunity for more profitable auto disposal options such as the “Cash for Clunkers” program.

However, the truth is that the number of people choosing to donate an auto went down even before the health of the economy did. In 2005, the Internal Revenue Service changed the laws regarding how much Americans would be able to claim as a deduction on their taxes when they donated a vehicle. Before 2005, a taxpayer could use the “fair market value” of the car or truck that they had donated to calculate their deduction. However, the new rules changed it so that the deductions would instead be based on the amount of money that the charity makes when selling the vehicle. To complicate matters even further, the amount needs to be verified beforehand by the charity.

As this is a federal law, it made car donation in Massachusetts and Montana alike less attractive to vehicle owners. IRS data shows that from 2004 to 2006, there were 68% fewer tax returns that reported the donation of a vehicle.

However, things might change soon, hopefully inspiring renewed interest in car donation from Los Angeles to New York. US Representative William D. Delahunt, a Democrat, has sponsored a bill intended to revise the rules laid out by the IRS so that those who donate cars will be able to estimate the amount of their payback at the time of the donation. The hope is that by revising the rules that have reduced the number of donations, more Americans will be prompted to donate their old cars and trucks when they’re in the market for a new vehicle.

About the Author

Sarah Michaels is the General Manager at www.charitycardonation.com. It is easy to donate your unwanted car or vehicle and help children in need. CharityCarDonation.com offers a hassle-free car donation process throughout the nation.

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