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Home / Services / Calculators / Newsletter / Archives Donating Automobiles We have been bombarded with advertising from many charities to donate our old automobiles and take a tax deduction for the fair market value on our tax returns. Some ads go so far as to state that "one could save more in taxes than he would get by selling or trading-in the automobile." The IRS has been reviewing these ads and the annual tax returns of these charities along with the tax returns of those individuals who made donations. They have discovered that some charities actually received as little as $25 from the sale of automobiles that taxpayers claimed were worth several thousands of dollars and this has cost the government millions of tax dollars. Taxpayers who claim a deduction for more than $500 for all contributed property, must complete Form 8283 and attach it to their tax return. They must disclose the name and address of the charitable organization, a description of the donated property, the date of the contribution, the date the taxpayer acquired the property, how the property was acquired, the taxpayer's basis (cost) of the property, and how the fair market value was determined. If they claim a deduction in excess of $5,000, the taxpayer must also disclose a summary of the overall physical condition of the property, the appraised fair market value of the property and the appraiser must sign the form. Determining the fair market value of a used automobile is not an easy task. Taxpayers should have current photographs of the exterior and interior of the automobile to substantiate that the car was in very good or excellent condition. Legitimate offers from purchasers can help establish a fair market value. However, a note from your friendly neighborhood used car salesman will not do. In fact, the IRS has stated that the Blue Book value will not be acceptable unless taxpayers show that they have adjusted the Blue Book values for the condition of the automobile. The IRS is considering issuing safe harbor values that taxpayers may use. If the taxpayer wishes to claim a larger deduction, they would be required to obtain an appraisal from a qualified appraiser. The IRS is also considering limiting the deduction to the amount the charitable organization receives from the sale of the automobile. Claiming a large deduction for an old beat-up automobile is an effective method of asking the IRS to audit your return. With the high amount of attention that this deduction is getting from the IRS and the press, having the proper documentation to support the deduction is a must.
(February, 2004 Newsletter)
James E. Newland, CPA 939 Center Road Eastlake, Ohio 44095 440-951-9799 |
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