SOME OF YOUR CUSTOMERS might be thinking about trading in their old vehicles for more fuel-efficient models, and some probably are thinking about donating these old cars to charity.
But before they go after what they hope to be a hefty tax deduction, make sure they know what the rules are, the American Institute of Certified Public Accountants advises. According to Tom Ochsenschlager, vice president of taxation for the AICPA, many taxpayers don't realize that the federal rules changed in 2005.
"Taxpayers have to meet strict IRS requirements in order to claim more than a $500 deduction," he says. "Many donated vehicles are clunkers," he adds. "They don't have a high resale value, and the charities don't get much money for them."
Ochsenschlager said the taxpayer's deduction can't be more than what the charity received, except under special circumstances:
- THE CHARITABLE organization uses it to perform some of its regular charitable activities — for example, using the vehicle to deliver food if providing food is part of the organization's regular function.
- THE CHARITY MAKES a major improvement to the vehicle — replacing the engine would qualify, but not a minor repair or routine maintenance.
- THE CHARITY GIVES the vehicle away or sells it for significantly less than fair market value to someone who is underprivileged, so long as the charity's purpose is to provide vehicles to poor or distressed individuals who need one.
