As of January 1st, 2005, new federal tax legislation governing vehicle donations is in effect. Below is a summary of the new legislation.

Under the new law, allowable deductions for charitable contributions of vehicles for which the claimed value exceeds $500 will depend on how the vehicle is used by the recipient charity.

If the organization sells the vehicle without any significant intervening use or material improvement, the donor’s deduction is limited to the gross sales proceeds received by the charity. But, if the organization uses the vehicle in direct furtherance of its charitable purpose the donor may deduct the "fair market value" of the asset. (According to the IRS, the donor, not the recipient charity, must determine the "fair market value" which the IRS describes as the price that a willing buyer and willing seller would agree upon if neither were pressured to do so. Assistance with vehicle values can be found on our Donation Guide page)

• Example: If a vehicle with a &fair market value& of $5000 is donated directly to the non-profit charity and the organization sells the vehicle for $1500, the donor can only deduct $1500. But, if for instance, the organization provides the vehicle to a disadvantaged person, the donor may deduct the full "fair market value" of $5000.

Substantiation requirements when the claimed value exceeds $500 are as follows: No deduction is allowed unless the donor receives a written acknowledgement from the charity. That document must include the name and taxpayer identification number (social security number) of the donor and the vehicle identification number (or similar number) of the vehicle.

Additional documentation is required but is dependant on how the asset is used by the charity: In the event the charity sells the asset without any significant intervening use or material improvement, the charity must send a written acknowledgement to the donor within 30 days of the sale certifying (1) that the vehicle was sold at an arms length transaction between unrelated parties, (2) the amount of the gross sales proceeds, and (3) include a warning that the donor’s deduction is limited to the sales proceeds.

If the charity intends to make significant use of the donated asset (such as providing a donated vehicle to a disadvantaged person) or make material improvements, the required written acknowledgement must be provided within 30 days of the contribution and must certify: (1) the intended use and duration of such use or the material improvements to be made and (2) that the vehicle will not be transferred in exchange for money, other property, or services before completion of such use or improvements.