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Donate Your Vehicle to Charity and Determine Its Fair Market Value
Although the laws were changed in 2005 to reduce the incidence of perfectly legal "tax fraud," there are still several situations where you may claim the "fair market value" of your car, truck, boat, RV or trailer when you donate any to a legitimate charitable non-profit organization (NPO). However, the rules governing what is "fair market value" have also changed.
Until it was clarified, many people (and paid tax professionals) thought this meant taking the "fair" amount from the Kelley Blue Book (or a similar estimation service), regardless of the actual condition of the vehicle. The IRS had different ideas about just what that was when they wrote the statute, but the wording was less than clear. The fair market value clause cost the IRS an estimated $640 million in 2000. Also, consider what shape the vehicles donated by middle-class Americans are actually in when their owners finally consider donation. Such vehicles are very often in less than "poor" shape. Many third-party, for-profit companies that acted as agents for charities were taking cars whether they ran or not (and advertising as such). The owner got to avoid a fee at the scrap yard, let someone else pick the car up for free and claim the fair market value as a tax deduction. However, taking into account the actual fair market value of your vehicle is where the IRS noted the discrepancy in question. Not only were the agents skimming as much as 70% of the sale price of each vehicle right off the top in legitimate (though sometimes dramatically padded) "service fees," but the difference in real worth became apparent at the point of sale. Since most of those cars ended up on the wholesale market, the price difference was even more acute. Even the "poor" rating in the Blue Book requires the vehicle be in 'running' condition. It is clear there was a major difference between what these vehicles would fetch if someone put a classified ad in the paper and their fair market value, as someone who'd taken economics classes would understand the term. The laws were changed in 2005 to require a receipt of any gift valued over $250 as well as a written satement of what the car actually sold for (over $500) or what use it was put to. Therefore, if the car is sold as its first use after donation, you will only be able to claim the amount of the sale price that was actually given to the charity. However, if the vehicle is used, as is, you may deduct the real fair market value - the price you can actually get for the vehicle if you were to go ahead and sell the car yourself. If the car is actually used as a car by a needy individual, your deduction can increase as much as 10-fold versis sold on the wholesale market. ------------------------------------------------------------------------------------------------------------------------ FYI Fair Market Value- In general terms: Generally, if you claim more than $500 as deduction, you can deduct the smaller amount -- the gross proceeds from the sale of the car by the organization, or the car's fair market value. Now different rules will apply if you claim a deduction of $500 or less. Generally, the less liquid and more unique a piece of property is, the harder it is to accurately determine its fair market value. For example, farm land is generally treated as a commodity and its fair market value can be determined with relative ease by comparing the sale prices of neighbouring properties. Generally, for a vehicle that has been purchased within the last three months, the agreed value will be the purchase price. ------------------------------------------------------------------------------------------------------------------------- If at any point in the first two years after you donate a car to charity, the car is subsequently sold, the charity will have to send you another receipt (actually a Form 8282) letting you know what happened to the vehicle. You don't have to change anything on your taxes, whether you've filed them yet or not. If it was legitimately used for any length of time, you may claim the fair market value of the car when you donated it. In fact, to back up your claims and justify the fair market value of your car that you've chosen, it is often a good idea to take pictures of the vehicle, inside and out. If the vehicle is valued at over $5,000 you'll need a independent appraisal (in writing) to confirm your fair market value calculations. If the vehicle is to be fixed up and sold, you may also claim the actual fair market value of your car, as it was when you owned it, only if the vehicle is repaired to such an extent that it may be sold for more money. You are still allowed to claim as much as you could have gotten if you'd placed a classified ad. Though the concept of fair market value does still allow you to claim values that assume perfect selling conditions. However, in the real world, many people price old cars in order to make them sell as quicklyas possible, so consider what you could actually gotten for it if you tried. You can assume a small advertising budget.
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Article Tags: Used Car, Car Donation, Buy Used Car, Car Dealer, New Car, Vehicle Donation, Used Car For Sale, Used Car Dealer, Donate Cars, Car For Sale, New Car Purchase, Sell Used Car, Donating Car To Charity, Charity Cars, Donating Cars To Charity, Cars For Kids, Auto Donation Article Source: http://www.articlesbase.com/automotive-articles/donate-your-vehicle-to-charity-and-determine-its-fair-market-value-466088.html About the Author:
Alex Padaco is an internet marketer who primarily promotes products & services related to generating site and blog traffic and viral list-building systems.
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