Looking for a good tax break? Donate your car

 Looking for a good tax break? Donate your car

Well, that old rat trap, rusty buggy still disguised as a car, has been occupying space in your driveway for a very long time. It became part of the landscape of the neighborhood. You've managed to overlook it, but your neighbors are a little upset. I bit the bullet and realized it was time to get rid of it, but how?

Donate your car
 Looking for a good tax break? Donate your car

Why not call a charity to see if they are interested in taking the car as a donation? Not only can you give your car to a charity to deposit it in your vine bank, when tax time comes, this donation can help keep some of your hard cold money in the bank also by allowing you to take a potentially large discount. If you ask those around you, you will find many charities that have created vehicle-taking programs as donations.

As you might expect with the IRS, there are some difficult rules. Giving a car to charities for tax relief is not as easy as ever. Old tax laws have allowed you to write off the fair market value of any car donated to a charity. Fair market value is determined by standard rating services in the automotive industry, such as the Kelly Blue Book, so if your car's blue book is worth $2,000, you must write this amount in full when tax time arrives. However, the system was fraught with abuse, with people claiming inflated donationvalues of $654 million in just one year. Therefore, the law was changed in 2005, and the IRS is now putting some restrictions on the way donations are claimed.

The basic rule is that the IRS sets a cap on vehicle donations of $500. If your donation is worth more, you will be asked to meet certain criteria before you can claim your discount. First, you need to know how the charity uses your car. If they take from you and sell it, the price they sell is the amount you can claim as a discount, even if it is less than the value of the car. If the charity sells your car for more than you deserve, you can only claim a discount up to the fair market value of the vehicle.

There are a few exceptions. If the charity decides to give up the car to a person in need, or if they sell the car to a person in need at a price that is much lower than the fair market value, in most cases you can claim the actual value of your car as a discount. Also, under the "interventionist use exception", if the charity uses your car for a period of time before selling it, then sells it for less than a fair market value, you can claim the value of your vehicle at the time of donation as a discount from you, because their use of the vehicle reduces its value.

However, if the charity makes improvements to the car, increases its value, and subsequently sells it more than it deserved when you donated it, you can still claim the fair market value of the car only at the time of donation. Whatever circumstances apply to you, the charity must notify you in writing within 30 days of receipt of the vehicle's intentions regarding the vehicle and the value of the donation. If they sell the car, they must notify you in writing within 30 days of the sale price.

Of course, deductions don't subtract directly from your tax bill, but they allow you to reduce your tax bill by a percentage. The exact amount of deduction that will be deducted from your tax bill depends on your income, tax bracket and how you are presented.