If you've been considering making a donation of a car, boat or plane to a charity, you will want to do so before the end of the year. Starting Jan. 1, 2005, the IRS rules for the amount you can claim for your deduction will change. If the charity sells the vehicle (which is common), you will no longer be able to deduct the fair-market value of the vehicle. You will only be able to deduct the amount the charity receives from the sale.
Since most of these vehicles sell at auction at a fraction of the fair market price, your tax deduction for this type of donation will decrease significantly beginning next year. If you make the donation after the beginning of the New Year, you will probably be better off selling the car yourself and donating the money directly to the charity.
In addition, for all non-cash donations over $500 (including a car, boat or plane), you'll need to obtain documentation from the charity indicating if the property will be sold or used by the organization. You will not be able to make any deduction without this documentation.
For more year end tax deductions to consider, read our article
2004 Year End Tax Deduction Moves To Save Money
IRS Tax Change For Your Charitable Car Donation
