January 2006

Highlights of 2005 Tax Law Changes

New Rules for Donating Vehicles, Boats, and Aircraft

Beginning in 2005, the charitable contribution deduction for a vehicle donated to charity, is generally limited to the gross proceeds from its sale. This rule applies if the claimed value of the donated vehicle is more than $500.

Form 1098-C (or other form of written acknowledgment of the donation) from the organization must be attached to the taxpayer's return. Among other things, the acknowledgment generally must include the gross proceeds of the sale, the vehicle identification number, and a statement certifying the vehicle was sold in an arm's length transaction between unrelated parties.  The taxpayer generally can deduct the vehicle's fair market value (FMV), if:

• The organization makes significant intervening use of or materially improves the vehicle,

• The organization gave or sold the vehicle to a needy individual at a price significantly below FMV in direct furtherance of its charitable purpose of relieving the poor and distressed or underprivileged who are in need of a means of transportation, or

• The claimed deduction is $500 or less.