This is from the Wall Street Journal about Vehicle Donations. Please watch the video by following this link below.

http://online.wsj.com/article/SB122100165129316945.html

TAX REPORT
By TOM HERMAN

Used-Car Donations Take a Hit
September 10, 2008; Page D3
If you’re thinking about donating your gas-guzzling sport-utility vehicle to charity and driving away with a hefty tax deduction, think again.

About 900,000 people donated their cars in 2004, but that number dropped to about 300,000 by 2005. As tax columnist Tom Herman explains, a new law changed the amount you can deduct for your donation. (Sept. 9)
While many taxpayers still are giving away used cars, boats or even planes, it’s generally no longer as attractive for tax purposes as it once was. The reason: changes in the tax law that were made in response to concerns that many donors were deducting inflated amounts. According to a recent Internal Revenue Service report, those changes led to sharp declines in 2005, the year they took effect, in both the number of used-vehicle donors and the dollar amount of deductions.

“The economics of giving away a car changed significantly” because of that law, says Greg Rosica, tax partner at Ernst & Young in Tampa, Fla.

If you donate a car or some other vehicle worth more than $500 and the charity or a middleman sells it, you typically can deduct only the selling price, even if it’s far below what you think the vehicle is actually worth. Previously, donors typically could deduct the full fair-market value.

But the law also includes a few important exceptions for donors who understand the fine print and are willing to take the time to do some homework. Here is a summary of the latest IRS data, the tax-law changes, and advice from accountants and other tax advisers.

• Donations. About 297,000 federal income-tax returns reported used-car donations for 2005 — down 67% from 901,000 for 2004. The amount claimed for these donations plunged by 81% to $470 million from more than $2.4 billion in 2004, according to IRS economist Janette Wilson in an article in the Statistics of Income Bulletin, a quarterly publication. Donations of other vehicles also fell sharply, Ms. Wilson reported.

To be sure, the article cautioned that the overall effects of the law change “may be overstated by these comparisons” because vehicle donations aren’t reported separately on Schedule A by taxpayers whose total deductions for noncash contributions don’t exceed $500. Thus, “the number of such additional donations is not known,” the IRS said.

ADDITIONAL READING

• IRS article on 2005 noncash donations
• IRS article on 2004 noncash donations
• IRS Tax Tip 2008-58
• GAO study on vehicle donations (see GAO Report Number GAO-04-73)
• IRS news release on Hurricane Gustav victims
• Witness list for hearing by Permanent Subcommittee on Investigations scheduled for Sept. 11, 2008Additionally, the 2004 numbers were up significantly from 2003, likely reflecting a one-time surge in donations by taxpayers taking advantage of the old law before it changed. For 2004, the total amount claimed for donations of autos and other vehicles rose by nearly 12% from 2003, driven by a 13% increase in the number of contributions, the IRS said in a separate report.

The vehicle-donation figures for 2005 are the latest available IRS data. But a separate study released early this year by the U.S. Government Accountability Office, a congressional investigative agency, said some charities reported a “substantial decline” in the number of vehicles donated from 2003 to 2006.

The National Kidney Foundation, a major charitable organization, has seen an overall decline in its car-donation program since the law was changed. Gross revenue from car donations it received totaled $19.5 million in 2004. Revenue totaled $14.3 million in 2005, $10.7 million in 2006 and $11.9 million in 2007, says Ellie Schlam, a spokeswoman.

• Changes. Under the American Jobs Creation Act, enacted in 2004 and effective in 2005, your deduction generally is limited to the actual sales price of the vehicle when it’s sold by the charity.

For example, suppose you donate a Toyota Camry you think is worth $2,400, based on research in used-car publications and conversations with used-car dealers. The charity sells it a few months later for only $800. In most cases, all you could deduct would be the $800.

As with so many other tax laws, though, there are some important exceptions. For example, you generally can deduct the vehicle’s fair-market value, rather than the sale-price amount, if you claim a deduction for it of $500 or less, the IRS says.

Other exceptions hinge on what the charity plans to do with your donation. For example, the IRS says you typically may deduct the vehicle’s market value if the organization gives it away, or sells it, to a “needy individual” at a price “significantly below” fair-market value “in direct furtherance” of its charitable purpose of “relieving the poor and distressed or the underprivileged who are in need of a means of transportation.”

Another exception: You can typically deduct the car’s fair-market value if the charity uses the car regularly for such purposes as delivering meals to the poor.

Figuring out fair-market value can be tricky. “Generally, vehicle-pricing guidelines and publications differentiate between trade-in, private-party and dealer retail prices,” the Treasury said when releasing guidance on the subject in mid-2005. According to the Treasury, the fair-market value for vehicle-donation purposes will be “no higher than the private-party price.”

For more details on the law, exceptions and other issues, see IRS Notice 2005-44 and IRS Tax Tip 2008-58, available on the IRS Web site (www.irs.gov).

• Advice. If you do decide to donate your car, boat or plane, rather than selling it or trading it in, consider shopping around among charities. First, check to make sure the organization is legitimate. Then ask what it plans to do with your gift — and, if your vehicle, boat or plane is valuable enough, consider trying to find an organization that fits into one of the exceptions outlined above.

“Choosing a charity is a very personal choice,” says Mr. Rosica of Ernst & Young. “For example, you may want to consider finding one that will use your car for its charitable purpose, such as delivering food or clothing to the needy.”

Whatever the case, be sure to pay attention to the record-keeping and substantiation requirements. Also remember you’re eligible to deduct donations to charity only if you itemize your deductions on Schedule A of Form 1040, instead of claiming the standard deduction, the IRS said. And if you make a gift and get something significant in return from the charity, such as tickets to a sporting event, you can deduct only the amount that exceeds the value of what you received.

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