Grassley, Baucus Preview New Car Donation Rules
WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, and Sen. Max Baucus, ranking member, today said taxpayers and charities can look forward to an easier process for determining the value of donated cars for tax deductions.
“Whether it’s the holiday season or not, Americans are generous and enjoy donating to charity,” Grassley said. “The new rules on car donations will make it easier for taxpayers to determine the value of their donation for tax deductions. The changes will take the guesswork out of determining the value. No one will have to risk getting in trouble with the IRS over a bad guess.”
Baucus said, “I am glad that the IRS has published guidance for taxpayers in the area of cardonations. Senator Grassley and I worked hard to get car donation reforms done once we realizedthe extent of abuse in this area. The guidance issued will help honest taxpayers to claim theirappropriate charitable deduction when they donate their vehicles to the various worthy charitiesacross the country.
“With that being said, I want to urge the IRS to continue to make diligent efforts to challengedishonest taxpayers that inflate the value of their non-cash charitable contributions, and cheat thetax system by taking overvalued tax deductions. Good IRS enforcement means lower taxes for themajority of taxpayers who follow the law and pay their fair share.”
Grassley and Baucus included tighter rules for donating cars in the manufacturing tax andtrade bill approved in October. Their newly enacted rules – effective for the 2005 tax year – willensure there is no additional burden on individuals donating a car, unlike other proposals that wouldhave required a costly and time-consuming appraisal. The new rules will not reduce by a dime theamount that goes to a charity. The paperwork burden on charities is limited. It applies only to carssold at auction for more than $500. Under current law, charities must send a notice of receipt totaxpayers after a car donation. The new law requires charities to add one line in their notice ofreceipt to taxpayers stating how much the car sold for at auction.
Grassley and Baucus said these common-sense reforms will go a long way toward endingthe abuses in car donations that have been documented by the Government Accountability Officein a report requested by the Finance Committee, in testimony before the Finance Committee, andin media reports.
On Tuesday, the IRS reminded taxpayers of the forthcoming changes. That document follows.
IRS Officials Urge Care for Those Making a Car Donation; New Law Changes Rules at End of the Year
IR-2004-142, Nov. 30, 2004
WASHINGTON — The Internal Revenue Service issued a consumer alert today to help taxpayersavoid potential pitfalls when they donate their automobiles to charities.In addition, as taxpayers plan their charitable giving, donors should understand the way that theAmerican Jobs Creation Act of 2004 will alter the rules for the contribution of used motor vehicles,boats and planes after Dec. 31, 2004.
Next year, if the claimed value of the donated motor vehicle, boat or plane exceeds $500 and theitem is sold by the charitable organization, the taxpayer is limited to the gross proceeds from thesale.
Under the new rules, the charitable organization must provide an acknowledgement to the donorwithin 30 days of the sale stating the amount of gross proceeds. Alternatively, if the charitysignificantly uses or materially improves the vehicles, the charity must certify this intended use andduration and provide an acknowledgement to the donor within 30 days of the contribution. If thecharity significantly uses or materially improves the vehicle, generally, the donor may deduct thevehicle’s market value.
For the remainder of 2004, however, the new rules do not apply. Under the rules in effect for 2004,taxpayers will be able to deduct the fair market value of the contributed property.
“Just because the rules will be tightened for vehicles donated next year doesn’t mean anyone shouldgive a car to charity and claim an inflated value this year,” said IRS Commissioner Mark W.Everson.
IRS officials recommend that people who want to donate their vehicle by Dec. 31, 2004, take thefollowing steps:
Check That the Organization is Qualified — Taxpayers should make certain that they contributetheir car to an eligible organization; otherwise, their donation will not be tax deductible. Taxpayerscan use the IRS Web site to check that an organization is qualified by searching Publication 78.
Publication 78 is an annual, cumulative list of most organizations that are qualified to receivedeductible contributions. Publication 78 is also available in many public libraries. In addition,taxpayers can call IRS Tax Exempt/Government Entities Customer Service at 1-877-829-5500. Besure to have the organization’s correct name and its headquarters location, if possible. Churches,synagogues, temples, mosques and governments are not required to apply for this exemption in orderto be qualified. They frequently are not listed in Publication 78. Donations to these institutions aretax deductible.
Itemize in Order to Benefit — Many taxpayers can’t take a deduction for car donations becausethey don’t itemize deductions on their personal tax return. For taxpayers, the decision to itemize isdetermined by whether their total itemized deductions are greater than the standard deduction (for2004, the standard deduction will be $4,850 for single; $9,700 for married filing jointly). Slightlymore than one-third of the 130 million individual taxpayers itemized in 2001, the last year for whichcomplete data is available.
Calculate the Fair Market Value — The donor must take many factors into consideration toestablish the value of the car. Many used-car buying guides contain step-by-step instructions so thatreaders can make adjustments to the value of a car for accessories, mileage and other indicators ofits general condition. Both Publication 526, Charitable Deductions, and Publication 561,“Determining the Value of Donated Property,” provide detailed instructions.
Deduct Only the Car’s Fair Market Value — Some car donation program operators havemistakenly claimed that donors can deduct the highest value listed in a used-car buyer’s guide fortheir make and model of car, regardless of the donated car's condition. The IRS, however, will onlyallow a deduction for the fair market value of the car. Fair market value takes into account manyfactors, including the vehicle’s condition. The fair market value of the taxpayer’s car may besubstantially different than the highest value listed in a used-car buyer’s guide for that make andmodel of car.
Document the Charitable Contribution Deduction — For vehicle donations, taxpayers mustdocument the car donation and its fair market value. Recordkeeping requirements are comprehensiveand vary depending on the amount of the contribution and the total amount of the charitablededuction. IRS Publication 526 details requirements for the types of receipts taxpayers must obtainand the forms they must file.
Contact State Charity and IRS Officials When in Doubt — Donors with questions about whethera contribution is deductible should call the IRS at 1-800-829-1040 or for TTY/TDD help, call 1-800-829-4059. They can also find IRS forms and publications at IRS.gov. Donors concerned thatcontributions are being solicited for fraudulent purposes should contact the appropriate state charityofficial, who is often located in the state attorney general's office. A list of state charity officialoffices can be found online.
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