Finance -
New Laws on Donating a Car
Jessica Deets
Jessica Deets researches the internet and has a passion for writing about credit. For more news about identity theft, see the website at 
By Jessica Deets
Published on 03/8/2008
It is advisable for a car donor to discuss with his tax advisor before putting his efforts and acts together to donate a car. Donating a car is no longer treated as a very desirable tax deduction option with the new laws taking effect.

Donate-your-car, as the name suggests, is the custom of donating cars to a charity organization when you feel that you do not want to use the car or you want to buy a new one for yourself.

This practice is very popular in the United States because of tax benefits associated with donating a car. It used to be that the donor may himself estimate the value of the car on which the tax deduction will depend, and then deduct that amount out of taxes owed.

On the other hand, the charity organization might receive the same price or less than the estimated value while trying to sell the same car.

But in the name of charity a number of people are into duping acts. In spite of being a non-profit business category, the charity actually produces a profit.

Since this is done in the name of charity nothing comes into limelight unless a really big issue surfaces.

Even though it is called a donation, and is associated with charity, the reality is that the benefits are not going into the right hands. Instead the dealers and financers of cars are making money out of it. Charity organizations are rarely audited, if they are, then there is usually a gap of one and a half years between two successive audits. It is in this period that advantage can be taken of the situation.

The Internal Revenue Service has come out with a new set of laws to take care of this practice.

The key changes to the new laws are:

1. The charity organization to which you are donating your car has to be a qualified one. If it lacks the qualification criteria then you are not eligible for tax deductions. There is a list provided in 'Publication 78' and it is available in public libraries or on the internet. You may check the name of any charitable organization to see if it is in this given list of qualified organizations.

2. The tax deductions would be on the fair market value of your car under donation. You cannot suggest a price with the help of a non-qualified used car guide. You can refer to Publications 526 and 561 respectively that spell out "Charitable Deductions" and also "Determining the Value of Donated Property."

3. The difference between the standard deductions and the one you list is very useful to determine. So do not forget to list your deductions to get the optimum tax deductions.

4. The documentations required for donation and tax deduction should be handy for you. For this,see Publication 526 as it is very helpful for every detail regarding forms and receipts required for this process or donating a car.

Additional laws now on car donation:

The tax deduction on the claimed value of $500 or more for the car donation will depend on how the charity plans to use the car.

If the charity organization decides to sell the car, the taxpayer will get deductions only on the gross proceedings the organization received from the sale. The donor will only come to know about the amount of donation from the charity organization before the tax-filing deadline.

The law has restricted the hands of the donor now. He can not interfere in the sale of the car and the amount of deduction will only be decided on the selling price of the vehicle BY THE CHARITY ORGANIZATION.

It is advisable for a car donor to discuss with his tax advisor before putting his efforts and energy together in donating a car. Donating a car is no longer treated as a very desirable tax deduction option nwith the new laws that have taken effect.