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Description
Abstract
The rules for determining the amount of a deduction for the charitable contribution of a vehicle were recently amended by the American Jobs Creation Act of 2004. Although charitable contributions of property are generally based on fair market value, the new rules limit the amount of the deduction to the gross sales proceeds from the subsequent sale of the vehicle by the charity.
Introduction
The Internal Revenue Code (IRC) allows a deduction for charitable contributions made during the taxable year. The American Jobs Creation Act of 2004 (AJCA) made significant changes to the rules governing charitable contributions when the contributed property is a vehicle. (1) AJCA added Section 170(f)(12) to the IRC, which contains rules for determining the amount of the deduction. (2) The new section also contains reporting requirements relating to contributions of vehicles, which generally require the donor to substantiate the contribution with a contemporaneous written acknowledgment from the donee charity. In addition, AJCA added IRC Section 6720, which imposes penalties on charities for providing a fraudulent acknowledgment of a vehicle contribution. Subsequent to AJCA, the Internal Revenue Service (IRS) issued guidance which provides exceptions to the valuation rules of Section 170(f)(12).
Background
IRC Section 170 allows a deduction for charitable contributions made during the taxable year to a qualified organization. When the contribution takes the form of property, rather than cash, special rules apply. Generally, contributions of property that would normally yield long term capital gain or Section 1231 gain upon its disposition entitle donors to a deduction equal to the fair market value (FMV) of the contributed property. (3) However, when the FMV is used to value a contribution of property to a public charity such as a church, hospital, or educational organization, the maximum deduction is generally limited to 30% of an individual donor's Adjusted Gross Income for the year of the contribution.
No deduction is allowed for claimed donations of $250 or more unless it is substantiated by written documentation from a qualified donee charity indicating the cash amount or property description of donated property. In the past, the amount claimed for donated vehicles did not have to be substantiated by the donee charity. Instead, the FMV was determined by the donor who used a variety of methods, such... |
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