Donating a car to charity can be a generous act, and the IRS provides specific guidelines for donors and donee organizations to ensure compliance and proper tax deductions. This article breaks down key aspects of IRS Notices 2006-1 and 2005-44, offering clarity on the regulations surrounding Car Donated to charities.
The American Jobs Creation Act of 2004 brought significant changes to the rules governing vehicle donations. Notice 2005-44 from the IRS and Treasury Department clarifies these changes, primarily focusing on how much donors can deduct when they donate car to charity. Generally, the deduction is limited to the actual sales price of the vehicle if the charity sells it. Furthermore, to claim a deduction, donors must receive a timely written acknowledgment from the recipient charity.
However, donors can still deduct the vehicle’s fair market value under certain circumstances where the charity utilizes the car donated in specific ways. These exceptions include situations where:
- The charity makes significant intervening use of the vehicle. For example, using a donated car to deliver meals to those in need.
- The charity makes material improvements to the vehicle. This refers to major repairs that substantially increase the vehicle’s value, going beyond routine maintenance like painting or cleaning.
- The charity donates or sells the vehicle to a needy individual at a significantly reduced price. This must align with the charity’s mission of assisting those in need of transportation.
To facilitate proper reporting, the IRS revised Form 1098-C. This form serves as the written acknowledgment that charities provide to donors. Notice 2006-1 further elaborates on the reporting responsibilities of donee organizations. It instructs them on how, when, and where to report information to the IRS from the acknowledgment they provide to the donor who donated car. This notice also addresses penalties for organizations that furnish false or fraudulent acknowledgments or fail to provide acknowledgments correctly.
These guidelines are crucial for both donors looking to claim a tax deduction for their car donated and for charities to ensure they are meeting their reporting obligations to the IRS. Understanding these rules helps maintain transparency and compliance within the car donation process.
Notice 2006-1
Notice 2007-70
Notice 2005-44
Form 1098-C PDF
