Value that ‘hoopty’ for what it’s worth
Alma M Scarborough, For the St. Louis American
The Internal Revenue Service has tightened several laws that we should be aware of. Following, I have listed a change in the tax law that will be effective immediately on the 2008 tax returns due April 15.
Prior to 2005, taxpayers who donated a vehicle were allowed to deduct its fair market value. Tax legislation enacted in 2004 changed the rules to generally limit vehicle donation deductions of over $500 to either the actual proceeds from a vehicle’s sale or the vehicle’s fair market value, whichever is less.
What this means is that you will NOT be able to put the amount that “you value” your car on the tax return for a deduction, especially if you value it over $500. Either you report on Form 1040 the actual proceeds from the sale of your vehicle or the fair market value – and, of course, you most report whichever is less.
Congress was concerned that people were inflating the value of donated cars under the former system. Claiming full blue book value for vehicles that had been turned down by the local junkyard is currently a thing of the past.
What IRS reported to Congress was that the charities that received the donated cars could not in some cases GIVE them away. Further, it was chronicled that subsequent to the law change donated cars decreased by 80 percent.
This means that the “hoopty” that you were going to donate this year to increase your charitable deductions may not be realized – unless of course, you have proper documentation to support your “hoopty” position.
Just as a sidebar, donations of vehicles besides automobiles also declined. The number of persons claiming non-car vehicles donations dropped over 25 percent.
Postscript: do not let the stats overwhelm you. Should you have a vehicle to donate, do not hesitate to get your proper deduction and take the write-off sensibly.
We are learning from penalties and other sanctions. Because the Internal Revenue Service does not contact you immediately does not mean they have overlooked or forgotten you.
Former IRS investigator Alma M. Scarborough owns Scarborough’s Tax Affair, 703 N. 13th Street, Unit 203; 314-621-1402.