The American Jobs Creation Act providing tax cuts to business was funded in part by increasing taxes to individuals. Approximately $2.4 billion was realized through restrictions on donors to receive the full fair market value for car donations. Deductions are now limited to what the vehicle is actually sold for or a maximum fair market value of $500. Since most donated automobiles are sold at dealer auctions, this has resulted in significant decreases in vehicle donations.
WHEN CAN YOU CLAIM FULL "FAIR MARKET" VALUE?

There are still a few restricted exceptions that allow donors to claim fair market value for their charity car donation. Treasury Department and IRS guidance for these restrictions is limited and they warn that some car donations taken under these exceptions will not be allowed . According to the IRS, donors may claim a deduction of the vehicles full fair market value only if:
o The charity makes a significant intervening use of the vehicle, such as delivering "meals on wheels".
o The charity makes a material improvement to the vehicle, i.e., major repairs that significantly increase its value.
o The charity donates or sells the vehicle to a needy individual in need of transportation at a cost significantly below-market price.
DETERMINING THE FAIR MARKET VALUE OF YOUR AUTO: The IRS accepts the Vehicle Donation Industry recommendation that the proper fair market value of a donated vehicle is the private party sale value. This value can be found in guides such as Kelley Blue Book. The actual condition of the vehicle must be always be taken into consideration in determining the value.

FILING REQUIREMENTS UNDER THE NEW LAW:
o The charity must provide the donor a written acknowledgment (a tax receipt or Form 1098C) within 30 days of selling or placing the vehicle in use. It should state the amount the vehicle sold for, if over $500, or that it is eligible for the fair market value deduction due to the intervening use.
o The donor must file the tax receipt or 1098C with their tax return, if claiming more than $500.
o Charities must file a form 1098C with the IRS for all vehicle donations including the donors Social Security number and VIN.

IRS LINKS:

IRS Warns of Questionable Deductions for Donated Vehicles
Charitable Donations of Vehicles
IRS Guidance Explains New Rules for Vehicle Donations

Note: It is the donors responsibility to accurately determine the vehicle fair market value and your tax status. Consult your tax advisor to determine your individual tax situation.

Daniel Goodman is President of Special Kids Fund. His own special needs child has been an inspiration to found a nonprofit umbrella organization for special needs and at-risk youth.