| Tightened Rules for Donated Vehicles Starting next year, charitable donations of motor vehicles will fall under strict new rules if the claimed deduction exceeds $500. Your write-off will now depend on how the donated vehicle is used by the charitable organization. If the organization sells it without using it significantly for charitable purposes or making material improvements, your deduction will generally be limited to the amount of gross sales proceeds received by the charity. This is a big (and unfavorable) change, because current law allows you to deduct the "full fair market value" of the donated vehicle. Whatever that is! Needless to say, the government suspects many folks have deliberately overstated values in order to claim excessive deductions. The new rules eliminate the opportunity to game the system in this fashion. That said, the IRS is expected to issue regulations that will exempt vehicle sales that are considered to directly advance an organization's charitable purposes. For example, assume an organization fulfills its charitable purpose by selling donated cars to needy individuals at bargain prices. In this case, the exemption would apply, and you could deduct the donated vehicle's full fair market value - even if it exceeds the gross sales proceeds received by the charity. (In other words, the outcome would be the same as under current law.) Charities will also be required to issue detailed written acknowledgments to vehicle donors. The IRS can then require organizations to disclose the information included in these acknowledgments and check to see if it matches up with donors' tax returns. Effective Date: These changes apply to vehicle donations made after 2004. The same unfriendly rules apply to donated boats and planes. So, if you're thinking about donating a vehicle (or a boat or a plane) worth more than $500, try to get it done before year's end. The information presented in the Tax Newsletter is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly, cannot be regarded as legal or tax advice. Please contact your tax advisor for more information on the subject and how it pertains to your specific situation. | 
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