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The keys to a successful charity car donation  

By CARRIE MARX
Guest columnist

Charitable contributions are the third largest itemized deduction claimed on individual tax returns each year, falling after only interest and taxes.

In 2004, individual charitable gifting increased 4.1 percent from 2003 levels to $187.92 billion, according to the Giving USA Annual Report on Philanthropy.

One current trend in charitable contributions is donating used vehicles.

Many organizations accept automobiles from donors and then sell them, using the proceeds to fund their charitable activities. As with any charitable donation, it is key to verify that the organization you have in mind is qualified to receive tax-deductible contributions. A listing of most qualified organizations can be found in Publication 78 at the Internal Revenue Service Web site ( www.irs.gov).

There are strict requirements for donating automobiles when the amount you claim as a deduction is more than $500. In previous years, many taxpayers claimed the fair market value of the vehicles.

As a result of perceived abuses, the law was changed and now the amount allowed as a deduction on your tax return depends on what the organization does with the vehicle. Generally, if the charity sells the automobile, your deduction is limited to the gross proceeds the charity receives, assuming the auto was sold without significant intervening use or material improvement to the automobile.

If the organization sells your vehicle for $500 or less and the fair market value is greater than $500, your deduction is limited to $500. It is important to remember you get the charitable deduction in the year you donate your vehicle to charity, even if the charity sells your vehicle in the following year.

One exception to the above rule that limits the deduction to the sales price comes when a charity sells the vehicle to a needy person at a price significantly below fair market value in direct furtherance of its charitable purpose. Another exception is when the charity keeps the vehicle and uses it for charitable purposes. In either of these cases, you can generally deduct the fair market value of the auto as of the contribution date.

The substantiation requirements for donating autos are also important. The law requires a “contemporaneous written acknowledgment” from the donee charity, commonly fulfilled with form 1098-C. The charity must give this to you within 30 days of the sale of the vehicle. In order for a deduction of $500 or more to be allowed by the IRS, you must attach this acknowledgment to your tax return. If the charity sells the vehicle this acknowledgement must include the following items:

•The donor’s name and taxpayer identification number

•The vehicle identification number

•The date of the contribution

• A certification the vehicle has been sold in an arm’s-length transaction between two unrelated parties

•The amount of the gross proceeds from the sale

•A statement that the deductible amount cannot exceed the gross proceeds

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